U.S. November Jobs Report: Beware of a Surprise?

Look for the Risk of a Surprise in the U.S. November Employment Report

In general, how markets end a week is generally more important than how they began or the trading in between.

This is especially true this week where the focus is on Friday’s release of the U.S. November employment report.

The consensus looks for the US economy to add 183k nonfarm payrolls to the economy in November, following the +12k gain in October (the low number was a function of weather and strike-related disruptions; t\…The unemployment rate is seen unchanged at 4.1% (in its September projections, the Fed forecast this rate rising to 4.4% by the end of this year), while the pace of average hourly earnings is seen easing a touch to +0.3% M/M (vs +0.4% in October)…. See a detailked preview in our Week Ahead

Markets move most when there is a surprise. In this regard, it would probably take a blowout report on the upside to alter expectations of a 25bps Fed rate cut on December 18. As this CME Fedwatch shows, current odds are 74/26 in favor of a 25bps rate cut.

The pre-FOMC blackout period  starts on Saturday where there are no public Fed speakers so all traders have to go on is economic data.

On Wednesday Fed Chair Powell gave no clues other than to say he is taking a cautious approach, leaving current expectations intact.

So put on your seat belts but bear in mind that markets, especially equities, are looking for reasons to continue the march higher and it would take a big surprise to force a reassessment. In this regard, keep an eye on the reaction in bond markets, especially in forex given the sensitivity of the dollar to changes in yields.

What does my gut say?

If I had to make a bet I would say there is a greater risk of an upside vs a downside surprise as that would have the greater impoact given rate cut expectations. However,  these are just words as I don’t plan to make a bet ahead of data that often seems random and subject to large revisions. Insteasd, I will tighten my seat belt and hope for a surprise.

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