The JOLTS (Job Opening and Labor Turnover) vacancy survey was released on Tuesday; the ADP in private employment was released on Wednesday; and the Official Employment Report was released on Friday. “The ratio of unfilled jobs to unemployed workers went from 1.25 before the pandemic to 2 during the reopening and has since fallen to 1.5. We will be watching to see if the ratio continues to fall, suggesting the Federal Reserve is engineering a soft landing,” said Ronald Temple, chief market strategist at Lazard. The JOLTS survey also includes voluntary withdrawal numbers, a revealing fact because people usually leave a job only for a higher wage or for a better quality job. The rate of leaving has decreased from 3% monthly to 2.3% in the last 18 months, in line with the average level of two years before the pandemic, recalls the Temple.
According to official employment data due at the end of the week, the unemployment rate is expected to remain at 3.9%, and the number of new non-agricultural jobs will rise to 200,000, compared to 150,000 last month. . A high surprise in payrolls or average hourly earnings (a prediction of 0.2% to 0.3% month-on-month) may cause investors to rethink their interest rate expectations. “With federal funds futures now predicting rate cuts of 125 basis points by the end of 2024, there is no need to reassess what I consider excessive optimism about the outlook at the rate,” said the Lazard expert. The next important piece of data that could trigger a similar revaluation of the rate outlook is the US CPI on December 12, when we will know if the “immaculate disinflation” continues, he added.
Temple also pointed to German trade and industrial production data (to be made public on Wednesday) that could indicate whether a turning point has been reached in business conditions in the leading industrial power and exports to Europe. Currently, he considers it “encouraging” that the German manufacturing PMI continues to improve from a new low of 38 to 42.
It also welcomed the fact that the preliminary euro zone inflation data for November was better than expected, suggesting that the ECB may start reducing rates earlier than expected: the markets increase the possibility of a rate cut to 75%. . “They now appreciate the reduction of the ECB rate at the end of 2024 by around 125 basis points. This is important given that changes in monetary policy in the euro zone will affect the economy faster and stronger than in the US. The reason for this difference is that, except France and Germany, most of the debt in the euro zone is variable rate, meaning that consumers are easily affected by rate changes. Similarly, 70% of the financing of companies in the euro zone comes from bank loans, which are usually at a variable rate, compared to 80% of the financing of US companies, which comes from the debt markets, usually at a fixed rate, “he. explained.
The Lazard strategist finally pointed out as the unique data of the week the import and export data of China, which showed the level of stability of internal and external demand, and the general social financing metrics of the Asian giant, which showed if credit is used more aggressively to support growth.