S&P 500 Whipsaws Around Warmer November U.S. Jobs Report

Also, 10-year T-note, gold, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): -0.20%
2. 10-year T-note futures (/ZN): -0.80%
3. Gold futures (/GC): -0.76%
4. Crude oil futures (/CL): +2.21%
5. Euro futures (/6E): -0.54%

There may be signs that the U.S. labor market is moderating, but by all accounts, the November U.S. jobs report was as close to a "goldilocks" data release as one could ask for.

The nonfarm payrolls report showed a headline gain of 199,000 versus the consensus forecast of 185,000 (though it should be noted the end of the UAW strikes accounted for 28,000 added jobs).

The household employment survey indicated that the unemployment rate (U3) dropped to 3.7% from 3.9% as workers reported 747,000 more jobs, and the labor force participation rate increased to 62.8% from 62.7%. Wages (average hourly earnings) held steady at +4% year over year.

Job losses through end of 2023?

With the solid if not strong figures, the U.S. labor market remains in fairly good shape. According to the Atlanta Fed Jobs Calculator, the U.S. economy could lose 56,000 jobs through the rest of 2023 and the unemployment rate (U3) would remain at 3.8% or lower, which is where the Federal Reserve believes the unemployment rate will be by the end of the year.

Overall, the November U.S. jobs report provoked two-way price action across asset classes, though most everything is effectively back to where it was ahead of the release. Notably, however, rate cut odds for 2024 are receding, helping provoke a bump higher in U.S. Treasury yields, and thus a rebound in the U.S. dollar. Meanwhile, growth-sensitive assets are performing better on the day.

Equity bulls not activated

In a "good news is bad news and bad news is good news" kind of world, a solid U.S. jobs report doesn’t do much to gin up equity market bulls. While all four major U.S. equity index futures have whipsawed around the data release, the domestic-centric Russell 2000 (/RTYH4) is outperforming its peers. Overall, the S&P 500 (/ESH4) and the Nasdaq 100 (/NQH4) may see their first weekly loss in six weeks.

Treasuries fall

U.S. Treasury bonds are falling across the curve on this morning’s jobs report. 10-year T-note futures (/ZNH4) are making their biggest daily percentage decline since October, with rate traders being rattled by the strength of the numbers, particularly wage growth which is sure to impact the Fed’s path forward if it continues in coming months.

This tees up bonds for a follow-through move from next week’s inflation report, which is expected to show a 4% increase in core inflation from a year ago. A stronger-than-expected print may undo more of the upside recently made in Treasuries.

Gold drops

Gold prices (/GCG4) pivoted lower as traders digested this morning's data out of the U.S. that showed a resilient labor market that added nearly 200,000 jobs, which was well above last month’s 150,000 addition.

Treasury yields shot higher, and the dollar strengthened, both of which are negative for precious metals. The most concerning thing from the jobs report, however, is that wage growth grew more than expected, which could complicate the Fed’s path forward.

Crude oil shows slight gain

Crude oil (/CLF4), despite this morning’s gain of over 2%, is on track to close the week with a seventh weekly loss, which would mark the longest losing streak since 2018.

The world has plenty of oil currently, with record-high U.S. production, subdued Chinese appetite, and uncertainty over how effective OPEC production cuts will be.

The prompt cash roll—the difference between the front-month contract and the follow-on contract—is trading at 0.25, marking a state of contango that suggests plenty of supply in the market. Still, traders may see a buying opportunity at these levels, where sellers have likely become exhausted.

The euro moves lower

The euro (/6EH4) is moving lower after this morning’s jobs report out of the United States. While the euro has declined for the past several weeks, the short trade is still popular among traders amid hesitancy from European Central Bank members, even some of the more hawkish ones.

Recent data out of Germany put more weight on the currency, and with little on the calendar that would likely shift the tide, traders will likely remain bearish on the euro for now.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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