Good morning, everyone. Today’s update revolves around the latest ADP jobs report and insights from the Fed minutes. Mortgage-backed securities are slightly down, and the 10-year treasury yield shows a modest increase. Let’s delve into the details of these developments.
ADP Jobs Report: Leisure and Hospitality Sector Surges
The December ADP report indicates a gain of 164,000 jobs, exceeding the recent average trend of around 100,000 jobs. This surge is primarily attributed to the leisure and hospitality sector, reflecting increased activities in dining and travel during the holiday season. However, this could be a seasonal spike, and we might see a return to normalcy in January.
Wage Increases Slowing Down
An interesting aspect of the ADP report is the slowing pace of wage increases. While wages continue to rise, the growth rate is decelerating, especially among job switchers, who previously saw significant pay increases. This slowdown could be indicative of a stabilizing job market.
Insights from Fed Minutes
The Fed minutes from the December 13th meeting, which marked a dovish pivot by Fed Chair Powell, provided several key insights:
Inflation Under Control: The Fed acknowledged that the annualized rate of core PCE over the last six months is below its 2% target, indicating that inflation is moving towards control.
Risk of Overly Restrictive Policy: There’s an acknowledgment of the risk associated with keeping the fed funds rate too high for too long, which could harm the economy.
Potential Rate Cuts in 2024: While most Fed members anticipate rate cuts in 2024, the specifics remain uncertain, reflecting the market’s unpredictability.
Apartment Listing Data and CPI Discrepancy
Apartment listing data for December showed a decline in new rents, contradicting the shelter component within the CPI report. This discrepancy might be due to CPI’s data collection method, which is refreshed semi-annually, with the next update in February and March. We might see a catch-up in the CPI’s shelter costs in the coming months, potentially lowering overall inflation figures.
Jobless Claims and Upcoming BLS Jobs Report
Initial jobless claims fell to 200,000, with continuing claims also seeing a decrease. However, these figures could be skewed due to the holiday season, so it’s wise to await next week’s data for a clearer picture. Tomorrow’s BLS jobs report is highly anticipated, with expectations of 170,000 job gains and a potential rise in the unemployment rate from 3.7% to 3.8%.
Technical Analysis and Market Stance
Currently, mortgage-backed securities are down, and the 10-year Treasury is hovering around 4%. We are approaching tomorrow’s jobs report with a floating stance, anticipating that it might reflect recent market trends and potentially lead to a decrease in yields. The overhead ceilings in the technical charts suggest that a major surprise in the jobs report could significantly impact the market.
The market is positioned cautiously ahead of the BLS jobs report, and we will closely monitor any developments. I hope you all have a great day, and stay tuned for further updates.
