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LGT Navigator: US labor market report – decisive factor for Fed interest rate pace

December 2, 2022

A more moderate pace of the Federal Reserve’s interest rate policy hinted at by Fed Chairman Powell in midweek will be put to the test again this afternoon with the upcoming US labor market report. If employment growth in the world’s biggest economy weakens, this could definitely signal the prospect of a slowdown in the pace of interest rate increases as early as December.

US labor market report – decisive factor for Fed interest rate pace

On the New York Stock Exchange, the start to the final month of this year was subdued after two strong months. The Dow Jones Industrial closed -0.56% lower at 34,395.01 points while the broad S&P 500 was virtually unchanged at 4,076.57 points (-0.09%). On the Nasdaq, the indices also remained at the previous day's level at the close. The dominant theme remains the monetary policy of the Federal Reserve. A decisive factor for a next interest rate step on December 14 is the labor statistics from Washington due this afternoon at 14:30 (CET). Economists expect slightly weaker employment growth of 200,000 new jobs created in November. On the bond market, the yield on ten-year Treasuries fell to 3.52% because of the moderate pace promised by Fed Chairman Powell and the US dollar lost further ground against the euro.

In Asia, most stock indices fell before the weekend. Stocks in Tokyo led the losses in the region, with the Nikkei 225 losing around -1.8%. The Hang Seng Index in Hong Kong fell -0.64% and in mainland China, the Shanghai Composite traded around -0.4% lower shortly before the close. The focus is on Beijing's further action regarding the pandemic measures, whereby it remains unclear whether or how much the strict Covid-19 restrictions could be relaxed.

Key inflation measure provides indication of slightly easing inflationary pressures in the US

The Federal Reserve's preferred inflation indicator, PCE (Personal Consumption Expanditure), which is based on consumer spending, confirmed that inflationary pressures in the US have recently weakened again somewhat. Although the indicator remained at a high-level year-on-year, it declined from +6.3% in September to +6.0% in October. Excluding energy and food prices, the core index declined from +5.2% to +5.0%.

ISM US industrial indicator slips into contraction

The Institute for Supply Management's (ISM) Purchasing Managers Index fell to 49.0 points in November from 50.2 (consensus 49.7), the lowest reading since May 2020, signaling a contraction in activity in the American manufacturing sector.

Slightly better sentiment in euro-area industry 

Industrial companies in the eurozone surveyed by S&P Global were more optimistic, with the Purchasing Managers' Index improving to 47.1 points in November from 46.4 in the previous month. However, the leading indicator remains well below the 50 line that separates sector growth from contraction. The intensity of the downturn in the euro-area manufacturing sector had weakened in November, giving hope that eurozone industry is not facing such a sharp downturn in the winter as initially assumed. On the other hand, uncertainty about energy supplies remains, S&P chief economist Chris Williamson said.

Outlook for British industry remains clouded

The UK's Purchasing Managers' Index for the industrial sector rose 0.3 points to 46.5 in November but remained below the expansion threshold of 50 points for the fourth month in a row. The sector continues to suffer from weak demand as well as high energy prices and material shortages, S&P Global commented.


Economic Indicators December 2

CET Country Indicator Last period
08:00 GE Exports (October, m/m) -0.5%
08:00 GE Imports (October, m/m) -2.3%
08:45 FR Industrial Production (October, m/m) -0.8%
11:00 EZ Producer Prices (October, y/y) +41.95
14:30 US Unemplomyent Rate (November) 3.7%
14:30 US Non-Farm Payrolls (November) +261,000
14:30 US Average Hourly Earnings (November, y/y) +4.7%
14:30 GE Bundesbank President Nagel speaks

Earnings Calender December 5

Country Company Period
GE Deutsche Boerse Periodic review DAX composition


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