U.S. Indices closed lower on Tuesday, in a choppy session, beginning in the US morning in futures after delayed US data. Recapping, the US November payrolls report headline came in at above expected, with the Unemployment Rate jumping to 4.6% from 4.4%, with some of the move explained by the participation rate rising, but the household survey is also subject to a larger standard error than usual, and it may be this way for a few months. On the Oct. headline, it fell 105k (exp. -25k), Retail Sales were soft but driven by a fall in auto sales, while S&P Global Flash PMIs disappointed. Akin to US indices, Treasuries saw two-way action, as they initially spiked higher amid a jump in the November unemployment rate, but it quickly faded as it was overall a mixed bag of data. Despite T-Notes then printing fresh troughs, they ground higher through the duration of the US afternoon to settle with a 3-5bps gains across the curve. The crude complex was once again underpinned by more promising Ukraine/Russia updates, while some traders also cite a surge in China buying oil from Venezuela in anticipation of sanctions. In FX, the Dollar saw slight losses, albeit well off earlier lows, as the Pound outperformed on hotter UK wage data ahead of the Bank of England on Thursday. Sectors were predominantly lower, although mega-cap stocks dominated Tech, Consumer Discretionary, and Communication Services were the only ones in the green, while Energy and Health lagged. Energy downside likely on the aforementioned oil weakness, while Healthcare was hit on Pfizer cutting guidance. Looking ahead, the influential Williams and Waller speak on Wednesday, with Micron earnings after-hours, CPI on Thursday, in addition to Nike earnings. Both October and November jobs reports were released following the government shutdown, albeit October came without the unemployment rate due to data gathering issues from the household survey during the government shutdown. The November headline NFP saw 64k jobs added, above the 50k forecast. Meanwhile, the unemployment rate spiked higher to 4.6% from 4.4% in September, albeit when rounded to 2dp the unemployment rate rose to 4.56%, 12bps higher than the 4.44% in September – albeit still above the year-end Fed median projection of 4.5%. However, it is worth stressing that the BLS announced on Monday that the November household survey has a slightly larger standard error, and these higher standard errors may last a few months. Meanwhile, the participation rate rose to 62.5% from 62.4%, with the U6 underemployment rate surging to 8.7% from 8.0%. Regarding wages, they were soft, rising 0.1% M/M in November, beneath the 0.3% forecast, while the Y/Y rose 3.5%, beneath the 3.6% forecast. The October NFP saw job losses of 105k; however, this was primarily due to a 162k drop in the federal government layoffs amid the government shutdown. Private payrolls rose by 69k in November, adding to the 52k addition in October. Regarding the overall NFP, Fed Chair Powell has suggested it is being overstated by 60k per month before accounting for annual revisions, implying real job growth of ~4k in November. Overall, the data had little impact on Fed market pricing, with 6bps of easing still priced for January, which implies a 24% probability of another 25bps rate cut. Following the report, ING writes that “Job creation continues to slow and unemployment is on the rise, which will mean the doves at the Federal Reserve will continue to make the case for further interest rate cuts”. It added that the risk of outright job losses is growing, and with mid-term elections less than a year away, the political pressure on the Fed to do more will intensify.” Retail Sales for October printed 0.0% M/M, shy of the expected 0.1%, and also beneath the revised lower 0.1%. The lacklustre headline figure was almost entirely due to a drop in vehicle sales following the expiry of the EV tax credit, which offset the strong ex-autos reading. Oxford Economics noted it leaves real consumption on track for growth of close to 2% annualised in Q4. Ex-autos M/M rose 0.4% (exp. 0.3%, prev. 0.1%), with Ex- gas/autos rising 0.5% (prev. 0.0%). Retail control jumped 0.8% (exp. 0.4%, prev. -0.1%). Ox Eco notes that due to the Government shutdown, they are missing other data that would feed into its tracking estimate of real consumption, but the details they have point to a decent gain in October. The consultancy adds that, with private sector job gains holding up and a strong stock market still driving spending by older, wealthier households, they expect a robust holiday shopping season and an acceleration in spending over 2026 as well. The S&P Global’s Flash PMI showed slower business growth in December as prices spiked higher. Manufacturing fell to 51.8 from 52.2 (exp. 52), and Services dropped more than expected to 52.9 from 54.1 (exp. 54), also beneath the lowest forecast of 53.0. This left the Composte lower at 53.0 from 54.2. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, writes that “the flash PMI data for December suggest that the recent economic growth spurt is losing momentum. Although the survey data point to an annualised GDP expansion of ~2.5% over Q4, growth has now slowed for two months. He adds that a key concern is rising costs, with inflation jumping sharply to its highest since November 2022, which fed through to one of the steepest increases in selling charges for the past three years. Elsewhere, Oil closed lower by a further 2.8% while Gold ended Tuesday’s session unchanged.
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