Friday, December 2, 2016
The following are pre-report estimates for the November Non-farm Payrolls report:
Non-farm Payrolls: +175,000 Jobs vs. +161,000 October
Unemployment Rate: 4.9% vs. 4.9% October
Hourly Earnings: +0.2% vs. +0.4% October
Average Workweek: 34.4 hours vs. 34.4 Hours October
With the U.S. Presidential election out of the way and a high probability of a Fed interest Rate hike in December, it is not that surprising that many traders are taking a rather ho-hum attitude towards this morning's release of the November Non-farm Payrolls report. For those that are showing an interest, we got a glimpse of what may occur on Wednesday when the ADP National Employment Report was released. This report, which only involves private sector employment, showed that 216,000 jobs were created in November. The largest sector job gains were seen in Transportation, Professional Services and Education & Health. On the downside, we saw job cuts in Information & Technology, Mining and Manufacturing sectors. So baring a major surprise in the payroll figures, many traders expect the Federal Reserve to raise interest by 25 basis points following the 2-day Federal Open Market Committee (FOMC) meeting that ends on December 14. As of this writing, the December 2016 Fed Funds futures contract was pricing in an over 98% probability of a 25-basis-point rate hike this month. Looking forward, we have to go out to the June 2017 futures for an over 50% probability of another rate hike, but as we know, the Fed is "data dependent" and we should expect to see these probabilities adjust as we head into the New Year.
Looking at the daily chart for December Fed Funds futures, we notice the market has been in a downtrend since late June of this year, as the market has nearly priced in a 25-basis-point interest rate increase by the Federal Reserve at the December meeting. As we get closer to the December FOMC meeting, we can expect to see only minor price fluctuations compared to the price activity earlier in the year, as it becomes more apparent from comments from Fed officials that an interest rate increase is expected. Should the Fed "surprise" the market by either raising rates by more than 25 basis points or not raise rates at all, we should expect to see a price "spike" either up or down as market participants are forced to price in the reality of the Fed's action at the December meeting. Support is seen at 99.450, with resistance found at 99.550.
Mike Zarembski, Senior Commodity Analyst