Wall Street Can’t Decide Whether the Job Market Is Showing a ‘Rebound’ or ‘Stalling Speed’
S&P 500 futures were flat this morning after the index closed up 0.37% yesterday. Asian markets were broadly higher today, but Europe’s STOXX 600 index fell slightly early in the session. The mixed picture reflects a debate on Wall Street over whether the U.S. Federal Reserve would cut interest rates in December – providing a new wave of cheaper money that will likely benefit stocks – or keep rates unchanged in its fight against inflation.
ADP private sector employment data was released yesterday, with stronger-than-expected job gains, leading some to believe the job market remains relatively strong. This would reduce the likelihood that the Fed will cut rates. But others noted that job growth was slowing further until it reached “stall speed,” the rate below which the economy creates fewer jobs than it loses.
The CME FedWatch index of bets on future interest rate levels showed that 67.3% of speculators were betting this morning that the Fed would cut another 0.25% of the base rate, with the remainder betting that the Fed would keep the rate unchanged.
Deutsche Bank argued that a rate cut in December was now less likely. “Private sector payrolls increased by +42,000 in October (vs. +30,000 expected), representing a sharp rebound from the -29,000 contraction in September. This is a release that has taken on more importance than usual, given that we are missing the usual jobs report due to the shutdown,” Jim Reid and his team at Deutsche Bank told clients this morning. “The US outlook has been more resilient than expected.
“Those [numbers] This means that investors have lowered their expectations for a Fed rate cut in the coming months,” they said.
However, Samuel Tombs of Pantheon MacroEconomics argued, using a chart, that although the number of private ADP employees is increasing, its growth rate is decreasing over time:
“This is well below the equilibrium pace of payrolls…So labor market slack likely continued to build in October, suggesting that official data will make a strong case for the FOMC. [Federal Open Market Committee] again in December,” he said in a research note.
He was joined by Jamie Cox, managing partner of Harris Financial Group in Richmond, Virginia, which manages $1.3 billion in assets. “For Fed watchers, this report from ADP should make it clear that a December rate cut is now in play. We are approaching a slowdown in the labor market, and that will get the Fed’s attention,” he said in a note sent to Fortune.
Here’s a look at the markets before the open in New York this morning:
- S&P500 futures are stable this morning. The last session closed up 0.37%.
- The STOXX Europe 600 was down 0.08% at the start of the session.
- The UK’s FTSE 100 was down 0.3% at the start of the session.
- Nikkei 225 in Japan was up 1.34%.
- The Chinese CSI 300 was up 1.43%.
- South Korea’s KOSPI was up 0.55%.
- The Indian NIFTY 50 is down 0.34%.
- Bitcoin was up to $103,000.
