The markets fell on Wednesday, extending their declines this week, despite the weak job market data supporting the outlook for lower interest rates next year.
According to the data supplied by Automatic Data Processing (ADP), the largest payroll processor in the U.S., showed that non-governmental employers added 103K jobs in November, much less than the expected 130K. Earlier in the week, a report showed that October’s job openings fell to their lowest in over two years.
As the labor data’s softening upheld the “end-cycle” narrative, Treasury yields declined, supporting technology stocks and risk assets such as Bitcoin (BTC). Meanwhile, crude oil prices fell on surging U.S. output, pressuring energy stocks.
Investors and policymakers will be closely watching today’s weekly jobless claims report, and especially the Unemployment rate and Non-Farm Payrolls, scheduled to be published on Friday. If these reports reflect the same trend of a weakening labor market, that will significantly reduce the risk of inflation revival due to wage pressures, thus paving the way for the Federal Reserve to pivot to a more dovish stance in the next quarter.
However, other economic reports continue to reflect economic resilience. Thus, a stronger-than-expected November Services PMI report hinted that the largest chunk of the U.S. GDP is still robust. According to BlackRock (BLK), equity markets will continue experiencing heightened volatility next year as they will be disappointed by fewer rate cuts than expected. The markets are now pricing in significant chances that the rates will be cut by 1.25% throughout 2024, an estimate that is “overdone” in BlackRock’s view.
