As noted earlier, today's payrolls report is - according to Bank of America [15]- the most important ever, and this time they may actually be right: this will be the last, most notable data point the Fed sees before its "historic" rate hike decision set to take place precisely 7 years after its decision to take rates to zero (of course it will be far more focused on the stock market every day until December 16).
What does consensus expect? Here are the big picture details:
- Change in Nonfarm Payrolls M/M Exp. 200K (Low 130K, High 275K), Prey. 271K, Sep. 142K
- Unemployment Rate M/M Exp. 5.0% (Low 4.9%, High 5.3%), Prey. 5.0%, Sep. 5.1%
- Average Hourly Earnings M/M Exp. 0.2% (Low 0.1%, High 0.4%), Prey. 0.4%, Sep. 0.0%
Breakdown by bank:
- Deutsche Bank - 140K
- BNP Paribas - 170K
- JPMorgan - 175K
- HSBC - 188K
- Goldman Sachs - 200K
- UBS - 200K
- Morgan Stanley - 205K
- Citi - 210K
Here is a full preview from Saxobank's head of macro and quant strategies, Mads Koefoed
Payrolls last piece to FOMC puzzle
- All-important US employment report to set tone for December FOMC
- US nonfarm payrolls come on heels of ECB's disappointing easing measures
- Consensus is looking for a 200,000 increase in November headline figure
- Our aggregate forecast is for 217,000 jobs, after stunning 271,000 October jump
- ADP reported private-sector jobs grew by 217,000 last month vs 190,000 expected
- A report in line with forecasts would suffice for the Fed to begin tightening
- Post your comment below or go to our NFP page to keep up with the action
What a day yesterday was as Mario Draghi's European Central Bank failed to ease monetary policy as much as markets had expected. The ECB cut its deposit rate by 10 basis points to negative 0.3% and extended its quantitative easing programme to March 2017 and expanded it to include regional debt instruments.
But markets had been expecting a bazooka, and that's not what they got. So stocks sold off and the euro surged, with EURUSD shooting up to 1.0873 from 1.0543 on the announcement.
The ECB meeting does not mark the end of this week's event risks. Far from it. Friday brings a suspenseful Opec meeting and, not least, the final US employment report (due at 1330 GMT) before the defining US Federal Open Market Committee meeting on December 15-16.
The US jobless rate has declined relatively steadily to the 5% mark. Job creation varies.
Consensus is looking for an increase of 200,000 in November nonfarm payrolls (NFP), while the unemployment rate is seen holding steady at 5%. If we get such a report today, it will be enough for the FOMC to proceed with the first rate hike in more than a decade.
Close match between unemployment rate and leading indicators
But will we get such a report? What do the numbers say?
- The ADP employment report shows an increase of 217,000 jobs in the private sector in November (190,000 expected), up from 196,000 in October. The job gains were broad-based, with 81,000 in small firms, 62,000 in medium-sized and 74,000 in large companies.
- The November ISM manufacturing survey disappointed with its first reading below 50% since 2012. While the consensus expectation had been for 50.5%, the number was 48.6%, and the employment component was only slightly better at 51.3%. This was, however, a marked improvement on October's 47.6%.
- The November ISM non-manufacturing report was much weaker than expected as well, printing 55.9% against 58% expected and down from the October figure of 59.1%. The employment component too declined to 55.0% from 59.2%. Nonetheless, these numbers are still consistent with robust growth in both the broad economy and the labour market.
- Initial jobless claims continue to be one of the most bullish labour market indicators. For November the series averaged 269,000 compared with 262,000 in October, and the reading for the survey week for NFP was 272,000. This corresponds to growth in NFP of around 250,000.
- Consumer confidence weakened considerably in November, according to the Conference Board, with its index falling to 90.4 from 99.1 and its Labor Differential index also worsening to negative 6.3 from negative 1.9 (a four-month low). The University of Michigan's consumer sentiment index was, however, little changed.
Based on these and other labour market-related indicators, I expect a reasonably strong employment report for November, though we could see a small disappointment relative to our own aggregate prediction of 217,000 jobs and the consensus expectation of 200,000.
There is a relatively high hurdle following October's surprisingly strong gain of 271,000 jobs. We would, on the other hand, have to see a significantly lower number — and weakness in other parts of the report, such as the unemployment rate, hourly wages and weekly hours — for the FOMC to postpone a rate hike into next year.
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Finally, here is RanSquawk's take on how the market will react:
In the final reading ahead of the FOMC rate decision on the 16th December, central focus is likely to remain on whether or not this report will impact on the Fed's decision to increase rates or not. Short-term volatility is likely to surround the release, given its focus, however, participants will likely take the release as more hawkish if there are minimal revisions to the previous two releases alongside a reading close to expectations. Additionally, this notion is likely to be supported further if the headline reading is particularly strong. In terms of asset classes, USD would likely see a bid alongside higher yields in US paper. However, the event could only have a short term impact due to the expectations for lift-off in December.
