Head of Macroeconomic Research
Summary: We will look towards a 184K headline print (above consensus) and are neutral on the unemployment rate and hourly earnings.
We see more upside than downside risk for payrolls in December following the positive ADP print and especially the continued employment growth in small and medium companies. Our optimistic bias regarding the headline print is due to the strong employment growth momentum observed in small companies (1 to 49 employees) which tends to be a good indicator of the US labor market and the broad state of the economy. December data was out very positive at +68K. And, as you can see in the chart below, the correlation between U.S. payrolls and the employment growth in small companies is decent at 0.74. We will look towards a 184K headline print for U.S. payrolls, with is above consensus (153K), and we are neutral on the unemployment rate, which should stay flat at 3.5%, and on hourly earnings, which are expected at +0.3% MoM. In terms of monetary policy, the expected labor market data are consistent with a Fed pause.
2024: The wasted year
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
