Non-farm payroll data disappointed last week with only 245,000 new jobs added in November vs the expectation of 469,000. The slowdown compared to last month was remarkable – we saw 610,000 new jobs added in October.
Also, the trend since June, when we saw 4.78 million jobs added, has been clear – the pace of jobs recovery is slowing. In July 1.76 million jobs were added, 1.49 million in August, and 710k in September. Nonfarm payrolls have recovered from April lows to recoup around 12.3 million jobs, around 56% of the 22.2 million that were lost during the initial COVID-19 crisis in the U.S. Whilst the recovery has been the fastest on record, there are still around 10 million people out of work. Unemployment rate is standing at 6.7%, down from 6.9% in October, but given the drop in labor force participation of around 400,000 people to 61.5%, the real unemployment remains unchanged. The numbers are not encouraging, especially given the massive amounts of stimulus coming out of the Fed and the federal government. People out of work act as a drag for the economy for 2 reasons – namely, they require unemployment benefits that have to be paid for by the state or the federal government. Secondly, the longer people are out of work, the less employable they become. The latter then becomes a supply side issue for the economy as there are less employable people available. The Congress is expected to vote on a new US$ 908 billion stimulus bill this week that has an allocation of around US$ 300 billion for employment benefits. The markets are likely to turn sentiment in the event this bill does not get approved, as has already happened a couple of times prior to the Elections.
The ECB is meeting this coming Thursday and is almost certain to expand their asset-purchasing program. A number of ECB officials have expressed their concern about sharper than expected slowdowns in growth momentum and weakening in fundamentals. Also, European Union leaders are voting on additional EUR 750 billion fund aimed to support countries struggling with COVID-19 related costs. A list of European member states has imposed lockdown measures and restrictions on movement due to the second coronavirus wave. The ECB seems to have learned from 2008 crisis when austerity was a key criterion in order to get access to the stimulus funds – ECM President Christine Lagarde has been emphasizing the need for favorable financing conditions. This means record-low levels of interest rates of -0.5%, in the absence of any meaningful inflation in Europe, are here to stay. European economy has been one with the hardest hit during 2020 crisis and the aggregate output is not expected to recover before 2023, while the U.S. is expected to reach the same level next year, and China is anticipated to grow the national output by 4.3% this year. EURUSD is currently trading at a swing high of 1.2177, up 1.33% last week.
Equity markets continue to carry the positive momentum as S&P500 hit another all-time-high last week, closing 3,699.2, up +2.25%. Nasdaq100 hit all-time-high of 12,538.92, up 2.31%. Gold has recovered some of the losses, closing the week near 1,841.52, up 3.2%. US dollar, measured by DXY, is still showing weakness, trading now at 90.76.
Have a great trading week ahead!