Bond Market Update

November Jobs Report Solidifies Rate Cut Expectations

• U.S. Treasuries finished the week on a higher note, pressuring yields to their lowest levels in at least five weeks. The trading day started with slim losses up front, but the entire complex rallied after the market received the Employment Situation report for November. The report showed a rebound in nonfarm payrolls (227,000; Briefing.com consensus 200,000), a slight miss in nonfarm private payrolls (194,000; Briefing.com consensus 200,000), and an uptick in the Unemployment Rate to 4.2% from 4.1%, which was expected. Even with the headline beat, the market's expectations for a 25-bps rate cut on December 18 jumped to 88.8% from 71.0% on Thursday. Despite the market's near-certainty that a cut is coming, Chicago Fed President Goolsbee (FOMC voter in 2025) said that he is not willing to commit to a rate cut at the December meeting until he sees the latest reports on inflation and consumer spending. Treasuries reached their best levels an hour after the release of the jobs report with shorter tenors remaining near their best levels into the close while the long bond backpedaled from its high, returning to little changed. The outperformance up front pressured the 2-yr yield past its 50-day moving average (4.114%) to a level not seen since the start of November while the 10-yr yield ended at its lowest level since late October. Crude oil fell toward its November low (66.61), giving up $1.28, or 1.9%, for the week, while the U.S. Dollar Index rose 0.4% to 106.09, adding 0.3% for the week.
• Yield Check:
  • 2-yr: -5 bps to 4.10% (-6 bps this week)
  • 3-yr: -4 bps to 4.06% (-4 bps this week)
  • 5-yr: -4 bps to 4.03% (-3 bps this week)
  • 10-yr: -3 bps to 4.15% (-3 bps this week)
  • 30-yr: -1 bp to 4.33% (-4 bps this week)

• News:
  • The U.S. exempted some Chinese chipmakers from export restrictions as a goodwill gesture to Japan.
  • China Securities Times noted that domestic investment is expected to improve next year.
  • There was continued political uncertainty in South Korea, as speculation mounted that martial law could be imposed again ahead of tomorrow's impeachment vote against President Yoon.
  • The Reserve Bank of India left its policy rate at 6.50%, as expected, but it also lowered its cash reserve ratio by 50 basis points to 4.00%, which was not expected.
  • Bank of England policymaker Greene expressed concern about sluggish consumer spending.
  • The Confederation of British Industry lowered its domestic growth forecast for 2024 to 0.9% from 1.0% and trimmed the outlook for 2025 to 1.6% from 1.9%.
  • Volkswagen's unionized metal workers in Germany are planning a four-hour strike for Monday.
  • Japan's October Household Spending was up 2.9% m/m (expected 0.4%; last -1.3%) but down 1.3% yr/yr (expected -2.6%; last -1.1%). October Wage Income was up 2.6% yr/yr, as expected (last 2.5%). October Leading Index fell to 108.6 from 109.1 (expected 108.9) and Coincident Indicator was up 2.5% m/m (last 0.7%).
  • South Korea's October Current Account surplus reached $9.78 bln (last surplus of $10.94 bln).
  • Eurozone's Q3 GDP expanded 0.4% qtr/qtr, as expected (last 0.4%), growing 0.9% yr/yr, as expected (last 0.6%). Q3 Employment increased by 0.2% qtr/qtr, as expected (last 0.2%), rising 1.0% yr/yr, as expected (last 1.0%).
  • Germany's October Industrial Production was down 1.0% m/m (expected 1.0%; last -2.0%), falling 4.8% yr/yr (last -4.2%).
  • U.K.'s November Halifax House Price Index was up 1.3% m/m (expected 0.3%; last 0.4%), rising 4.8% yr/yr (expected 3.6%; last 4.0%).
  • France's October trade deficit reached EUR7.7 bln (expected deficit of EUR8.0 bln; last deficit of EUR8.4 bln) and October Current Account deficit reached EUR2.6 bln (last deficit of EUR2.4 bln).
  • Italy's October Retail Sales were down 0.5% m/m (expected 0.9%; last 1.3%), but up 2.6% yr/yr (last 0.7%).
• Today's Data:
  • November nonfarm payrolls increased by 227,000 (Briefing.com consensus 200,000). The 3-month average for total nonfarm payrolls increased to 173,000 from 123,000. October nonfarm payrolls revised to 36,000 from 12,000. September nonfarm payrolls revised to 255,000 from 223,000.
    • November private sector payrolls increased by 194,000 (Briefing.com consensus 200,000). October private sector payrolls revised to -2,000 from -28,000. September private sector payrolls revised to 222,000 from 192,000.
    • November unemployment rate was 4.2% (Briefing.com consensus 4.2%), versus 4.1% in October. Persons unemployed for 27 weeks or more accounted for 23.2% of the unemployed versus 22.9% in October. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 7.8% from 7.7%.
    • November average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in October. Over the last 12 months, average hourly earnings have risen 4.0%, versus 4.0% for the 12 months ending in October.
    • The average workweek in November was 34.3 hours (Briefing.com consensus 34.3), versus 34.2 hours in October. Manufacturing workweek was little changed at 40.0 hours. Factory overtime increased 0.1 hour to 2.9 hours.
    • The labor force participation rate decreased to 62.5% from 62.6% and the employment-population ratio fell to 59.8% from 60.0%.
  • The preliminary University of Michigan Index of Consumer Sentiment for December increased to 74.0 (Briefing.com consensus 73.5) from the final reading of 71.8 for November. In the same period a year ago, the index stood at 69.7.
    • The key takeaway from the report is the understanding that consumers were targeting the purchase of durables now to avoid what they think will be higher prices in the future.
  • Consumer Credit increased by $19.2 bln in October (Briefing.com consensus $10.5 bln) after increasing a revised $3.2 bln (from $6.0 bln) in September. Revolving credit was up $15.7 bln while nonrevolving credit grew by $3.5 bln.
    • The key takeaway from the report is that the expansion of consumer credit was driven by revolving credit, showing a propensity by consumers to use credit for their spending activity.
• Commodities:
  • WTI crude: -1.7% to $67.17/bbl
  • Gold: +0.4% to $2658.80/ozt
  • Copper: +0.5% to $4.20/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0558
  • GBP/USD: -0.2% to 1.2738
  • USD/CNH: +0.3% to 7.2837
  • USD/JPY: UNCH at 149.99
• The Week Ahead:
  • Monday: October Wholesale Inventories (prior -0.2%) at 10:00 ET
  • Tuesday: November NFIB Small Business Optimism Index (prior 93.7) at 6:00 ET; revised Q3 Productivity (prior 2.2%) and Unit Labor Costs (prior 1.9%) at 8:30 ET; and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 2.8%) at 7:00 ET; November CPI (prior 0.2%) and Core CPI (prior 0.3%) at 8:30 ET; weekly crude oil inventories (prior -5.07 mln) at 10:30 ET; $39 bln 10-yr Treasury note reopening results at 13:00 ET; and November Treasury Budget (prior -$257.0 bln) at 14:00 ET
  • Thursday: November PPI (prior 0.2%), Core PPI (prior 0.3%), weekly Initial Claims (prior 224,000), and Continuing Claims (prior 1.871 mln) at 8:30 ET; weekly natural gas inventories (prior -30 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: November Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.2%), Export Prices (prior 0.8%), and Export Prices ex-agriculture (prior 0.6%) at 8:30 ET