The cautionary canary makes an appearance ahead of NFP ( + OPEC)

Markets

Stock market operators across the major US indices hit pause overnight, steeling themselves for potential turbulence as the Labor Department prepares to release the pivotal November jobs data later on Friday. The upcoming report, the last before the Federal Reserve's December rate decision, is poised to stir volatility, potentially amplified by “ bounce back” effects from recent hurricanes and strikes. This added noise may cloud interpretations of the data, complicating the analysis of whether the figures indicate a true beat or miss scenario and making it a challenging landscape for market participants trying to gauge the economic direction ahead of the Fed's next moves.

Market participants and top Federal Reserve officials are tilting towards a rate cut in December, with market expectations approaching near certainty at a 70% probability. However, the Fed's final decision could pivot on forthcoming economic data. Should upcoming releases, including next week’s CPI, demonstrate unexpected economic strength, it could alter all forecast trajectories for current and future rate cuts.

Amid the quiet anticipation, U.S. jobless claims have provided a pulse of the labour market's temperature. Notably, claims rose by 9,000 during Thanksgiving week, marking the largest weekly surge since early October—a period significantly skewed by hurricane disruptions.

Despite this uptick, the four-week moving average of jobless claims remains reassuringly low at 218,250, far from the recessionary warning line typically drawn at 275,000-300,000. This suggests that, at least for now, the labour market retains its solid stance, devoid of immediate recession signals.

Adding another layer to the employment landscape, the November figures from the Challenger, Gray & Christmas report pointed to a notable rise in job cuts, totalling 57,727 for the month—up about 27% year-over-year and marking the fourth-highest November total since the Global Financial Crisis. This year, the report has tracked 722,566 layoffs, a significant uptick in job cut announcements, reaching levels not seen since 2009, with the stark exception of 2020( COVID). This surge has been particularly felt in sectors like automotive, where suppliers and parts manufacturers faced significant reductions, alongside persistent layoffs in consumer and industrial manufacturing technology sectors.

The recent uptick in job cuts across specific sectors could serve as a cautionary canary, hinting at more challenging times ahead. These layoffs might be the early warning signs of broader economic strains, particularly in automotive and manufacturing technology industries.

Oil markets

Once again, major oil producers have deferred plans to ramp up production, reacting to a stagnant market grappling with sluggish global demand and heightened output from other regions.

Throughout November and into December, Brent crude has oscillated within a $70-75 per barrel range, influenced by a net bearish sentiment emanating from post-election dynamics in the U.S. However, the precise impact of President-elect Donald J. Trump's policies on the oil market remains murky. Trump could adopt a more stringent approach towards Iran, curtailing its oil exports, which might free up market space for increased production elsewhere.

Additionally, he has dangled incentives before major U.S. oil players, encouraging them to "drill baby drill."

Major U.S. oil players typically focus less on political figures and more on market fundamentals, with price signals guiding their operations. These operators are bracing for an anticipated surplus next year, which could dampen any excitement for increased drilling activities, capping industry expansion regardless of the political backdrop. Yet, with Trump, often regarded as the 'Dealmaker in Chief,' there's a strong likelihood he will spur oil CEOs to escalate drilling efforts under his "drill baby drill" mantra.

Forex Markets

Yesterday's London Openc Forex Report discussed the expected movements in EURUSD and USDJPY. This shed light on why EURUSD would rise overnight and why USDJPY would find resistance at the 150.50 -60 level.