Review of employment statistics and ahead of next week's FOMC

Hello, this is Shimoyama.



Now,

on December 13 and 14

the last FOMC of the year

is scheduled to be held.



At the FOMC,

the extent to which the policy rate is raised

will continue to have a large impact on the market,

and it is also crucial for predicting

the direction of the markets.

Labor market data

was released last Friday.







Labor market data include

employment

unemployment rate

average hourly earnings

labor force participation,

and various other indicators,

but it is commonly referred to as

the “employment statistics.”







When employment statistics are released,

the foreign exchange market and

government bond market,

and also the stock market,

experience large fluctuations.

So this time,

we will review last week’s employment statistics and



discuss the stock market movements ahead of next week’s FOMC.






＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Review of Employment Statistics

＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Employment statistics are

considered by market participants

as an indicator to gauge the market’s direction over the coming weeks.

As the FRB Chair Jerome Powell has

emphasized,

this is a closely watched indicator.





Next,

let’s review the employment data’s results

and



examine the stock market moves ahead of next week’s FOMC.First, the most watched item

is nonfarm payrolls, which rose by

+263,000,

well above market expectations of +200,000.

Average hourly earnings increased by

+0.6% month over month,

versus the expected +0.3%,

and year over year rose by

5.1%.

The unemployment rate stood at

3.7%, in line with expectations,

and flat from the prior month.










The results from this employment report

strengthen expectations for further tightening

and cast doubt on the notion that

the pace of rate hikes by the Fed will slow down

without the economy weakening.





In response,

the New York stock market on Friday the 2nd

generally declined,

but ended up volatile,

with the gains narrowing as

U.S. long-term rates supported a rebound,

and the Dow Jones Industrial Average

closed up 34.87 points at

33,429.88.

The Nasdaq Composite, focusing on tech shares,

ended down 20.95 points at

11,461.50.








＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

How to interpret the employment data

＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Now, the crucial interpretation of the employment numbers:

employment data are used to judge

whether the economy is doing well or poorly.

An increase in employment and a low unemployment rate signal

economic strength.









Also, policy rates are tools to control the economy.

When the economy runs hot,

policy rates are raised,

and when the economy weakens,

rates are cut to stimulate demand.







In other words, when policy rates are high, funds flow into

the bond market rather than equities,

and when rates are low, money flows into the stock market.

That is the trading rule of thumb.









In other words, when employment data are strong,

the economy is assessed as overheating,

inflation tends to rise,

and higher policy rates are required.











When policy rates are high,

lending rates at banks rise as well,

making it harder for funds to flow into equities,

and the stock market struggles to rise.








＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Toward next week’s FOMC

＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

To summarize the employment data this time,
it can be said that overall the numbers were strong.







In the near-term financial markets, concerns about the US economy slowing down

had been mounting,

but the data has somewhat reduced these expectations for Fed tightening.

However, at the December FOMC,

the view that the rate hike size will be reduced from 0.75%

to 0.5% remains unsettled even after this employment report,























Therefore, if the December FOMC were to raise the policy rate by

75 basis points,

the stock market would be cooled, and stock prices would trend lower,

but if it were as expected at 50 basis points,

there would be no major turmoil.







Also, going forward, the question becomes how long a 50 basis point hike will be needed,

and for the next meetings on January 31 and February 1,



whether the same magnitude will be kept,

which is expected to become the focal point.


＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Summary

＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝

Next week’s FOMC will require attention to the policy rate figures,

but

the post-announcement press conference by Powell

will be particularly important.









Also, a December note is that

major market participants,

European and American institutional investors,

are entering the holiday season,

so liquidity may be thin,

which is something to be mindful of.



When liquidity is thin,

small amounts of capital can cause big moves,

and technical indicators can become less reliable,

so you should trade with that in mind.









In this newsletter, we will continue to share

the latest news and

stock market trends,

but please keep in mind that the information is



only indicative of trends,

and you should be prepared to respond to unforeseen events.









So, thank you for reading until the end today as well.

—Shimoyama Keizo






*Disclaimer*

We strive to ensure the contents of this newsletter are accurate and up-to-date,
but we cannot be held responsible for any losses arising from the information provided.
Please understand.
Thank you.