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A preview of the December NFP report and its implications for financial markets

Today is the last trading day of the month. As such, volatility is about to increase due to the end-of-month flows.

However, it might not be relevant for the period ahead because December is typically a slow month. Nevertheless, important economic data is scheduled in December, starting with the NFP or Non-Farm Payrolls report this Friday.

The market expects the US economy to add another 200k jobs in November, following 261k in October. Also, the unemployment rate is forecast to remain unchanged at 3.7%.

This week’s NFP release will focus on the change in employment and wage growth, as they both matter for the Fed when setting the monetary policy.

Job growth still surpassing expectations

The Federal Reserve has a dual mandate – price stability and job growth. Inflation rose well above the Fed’s target, triggering aggressive rate hikes.

But the jobs market remained very strong. Sure enough, it slowed recently (e.g., in October), but still surpassed market expectations (261k vs. 200k).

If the trend continues in November (i.e., the US economy creates more jobs than forecast), the Fed will still have room to hike rates in 2023.

Wage growth slowed down recently

Inflation is the main concern for the Fed. Wage growth is important because it feeds the core PCE inflation – the Fed’s favored tool for measuring inflation.

Therefore, a decline in wage growth implies lower core PCE inflation. As such, this Friday’s report is relevant for both sides of the Fed’s mandate – price stability and job creation.

All in all, expect the NFP to bring volatility to financial markets. As the Fed was in the driving seat in 2022 in terms of leading other central banks’ moves, all eyes are on the NFP report’s implications for the Fed’s future monetary policy.

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