Home » US Non-Private Payroll Report Surprises Markets, Casts Doubt on Fed Rate Projections

US Non-Private Payroll Report Surprises Markets, Casts Doubt on Fed Rate Projections

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US Non-Private Payroll Report Surprises Markets, Casts Doubt on Fed Rate Projections

US November non-private-payrolls, unemployment surprise signals slower labor market but no recession

Investing.com – The surprising report on non-private payroll creation and unemployment in the United States for November, released this Friday, showed that the labor market would not be cooling as the United States Federal Reserve (Fed) would like.

This has cast doubt on speculation that monetary authorities could cut interest rates as early as March and has even revived bets on a further interest rate hike.

The Labor Department’s Bureau of Labor Statistics reported an increase of 199,000 jobs in November, surpassing estimates of 180,000 that economists were expecting, and accelerating from the 150,000 added in October.

“However, it marked the second consecutive month of job creation below the average monthly increase of 240,000 observed last year, reflecting a slowdown in the labor market,” observed Janneth Quiroz Zamora, director of Economic Analysis, Foreign Exchange. and Stock Market at Grupo Financiero Monex.

As for that of the largest economy in the world, the November reading slowed to 3.7% from 3.9% in October, being its lowest level since July but recording a record below what analysts expected, also at 3.9% .

According to Investing.com’s Fed Rate Barometer, based on Federal Reserve funds futures prices, markets assign a 5.5% probability that there will be a rate hike in December for bring them to the range of 5.50 to 5.75%; Although this possibility is relatively minimal, it should be noted that in previous days they were practically non-existent.

What’s more: Yesterday, markets still supported most bets that the central bank would begin rate cuts in March, but after the release of official U.S. jobs data, most are now leaning toward it. It will not be until the May meeting when the Fed lowers interest rates by about 25 basis points.

“This report raises questions about the possibility that the Federal Reserve could begin to cut rates as soon as March of the following year; the strength of the labor market could cause the disinflationary process to be slower than estimated,” Intercam Banco analysts said.

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Changes in the expectations outline a scenario in which the Bank of Mexico (Banxico) will cut interest rates in the first quarter of 2024, while the Fed would do so until the second quarter.

This, consequently, would imply a reduction in the differential between the rates of both countries in the first quarter of next year. The wide differential in rates has been one of the key factors that has led to it achieving a historic appreciation in 2023, since so far this year it has accumulated a gain of 11%.

Despite the possibility of a scenario in which the differential is reduced, the Mexican peso has made an important advance this day. Around 9:15 a.m. local time, the local currency showed an appreciation of 0.78% with the exchange rate touching a minimum of 17.31 pesos per dollar.

Today’s employment data also demonstrates that the United States economy has shown greater resilience and strength than predicted by economists who, at the beginning of the year, even anticipated the possibility of a recession at the end of the year, something that is now ruled out. . And given the commercial dynamics between the United States and Mexico, these data have played in favor of the Mexican peso.

“Because the report is generally positive, the market is speculating in favor of the Mexican peso due to the close economic relationship that exists between Mexico and the United States,” said Gabriela Siller Pagaza, director of Economic and Financial Analysis at Grupo Financiero Base. .

However, he noted, speculation that the Fed could take longer to begin lowering interest rates has also boosted the US currency against its main crosses.

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The , which tracks the evolution of the US currency in a basket of six other main currencies, strengthened its advance up to 0.26% at 103.81 units

“Investors would be positioned to receive the monetary policy decisions of the largest central banks, as well as a series of economic indicators, including consumer inflation in the United States,” commented Grupo Financiero BX+.

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