Weekly Kick Start | 25 November 2023

Last week, the U.S. labor market presented a complex picture. Despite a significant drop in unemployment claims, broader indicators suggest a gradual cooling in the job market, influenced by the Federal Reserve’s monetary policies.We will discuss these data and potential implications in this week’s recap.

On Top of Our Mind This Week: U.S. Labor Market’s Slowdown Amidst Falling Jobless Claims

Source: Yahoo Finance

Drop in Unemployment Claims: 

The Labor Department reported a noteworthy decline in jobless claims, with initial claims for state unemployment benefits falling by 24,000 to a seasonally adjusted 209,000 for the week ending November 18. This figure surpassed economists’ predictions of 226,000 claims. The data, released a day early due to the Thanksgiving holiday, indicates a labor market that remains robust on the surface. Besides that, minutes from the Federal Reserve’s late October meeting revealed a nuanced view of the labor market. Policymakers acknowledged that the labor market is still tight but noted a slight easing, partly attributed to recent increases in labor supply. This observation aligns with the Fed’s aggressive interest rate hikes since March 2022, totaling 525 basis points, bringing the policy rate to the current 5.25%-5.50% range.

US Dollar index Outlook: 

The U.S. dollar initially experienced a surge following the release of the unemployment data.However, this ascent was short-lived. Despite the positive labor data, the dollar’s rally soon tapered off, reflecting the complexity of the current economic landscape. The Federal Reserve’s meeting minutes, indicating a slight easing in labor market tightness, painted a more nuanced picture of the economic conditions. This, combined with the broader anticipation of a potential slowdown in the Fed’s rate hikes and even speculations of a future rate cut, contributed to the dollar’s subsequent decline.

Broader Labor Market Trends: 

There are signs of a more widespread slowdown in the labor market. Bank of America Institute’s analysis of internal data highlighted increased pay disruptions across income groups, suggesting a rise in joblessness. Additionally, a significant slowdown in job-to-job moves indicates a more cautious approach by workers in an uncertain economic environment.

Why should we care:

In summary, while the immediate data shows a drop in unemployment claims, the broader indicators point to a labor market that is slowly decelerating, affected by higher borrowing costs and an uncertain economic backdrop. Investors and policymakers alike will be closely monitoring these developments as they navigate the complexities of the current economic landscape.

Market Recap This Week

This week, the equity market saw modest gains, with the S&P 500 and NASDAQ increasing by 1.0% and 0.9% respectively. Hong Kong’s Hang Seng Index continued its upward trend, growing by 0.6%. In a notable shift, the 10-Year Treasury Yield slightly rose by 3 bps. The commodities sector recovered as crude oil surged by 6.4% and gold edged up by 0.8%. Meanwhile, Bitcoin continued its positive trend, increasing by 3.3% .

Source: Google Finance, Syfe Research, 25 November 2023 

What is on the Radar for This Week? 

Coming up next week, a major focus will be on the United States’ economic front, as the country is set to release its third-quarter GDP QoQ on Wednesday. Analysts are anticipating a growth rate of 4.9%, mirroring the previous quarter’s performance. Investors will also be closely monitoring Federal Reserve Chair Jerome Powell’s speech on Friday, which are often scrutinized for subtle indications of future monetary policy. These developments are expected to play a pivotal role in shaping the future of U.S. exchange rates and interest rates.

Source: Yahoo Finance, Bloomberg, Google Finance, Business Times 

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