Despite High Inflation and Mounting Personal Debt, U.S. Payrolls in October Remained Strong

Equity markets pulled back for a 2nd day following the Fed's latest 75 basis point interest rate hike. The takeaway from the meeting was that interest rate hikes will continue “until inflation gets back to normal”, although the pace may vary if the data warrants. What this means for the market is that another 75 b.p. hike could be coming in December if the inflation data stays hot.

It’s U.S. jobs day and we’ll get October employment data at 8:30 a.m. Total Nonfarm payroll employment in the U.S. jumped up by 261,000 in October. The vital indicator was expected to increase to just about 200K, down from the 263K jobs added in September, so markets have a good reason to outperform today. The unemployment rate is forecast to tick up to 3.6% from 3.5% in September, a 50-year low, while the labor force participation rate is projected to be unchanged at 62.3%. Average hourly wages are expected to rise 0.3% from September's $32.46, bringing the average hourly wage to $32.56 in October (on a Y/Y basis, wages would increase 4.7%, slowing from the 5.0% increase in September). Earnings include Enbridge, Duke Energy, Dominion Energy, Hershey and DraftKings. Today's action will be impacted by the NFP report, which is expected to show a moderately strong job increase of 200,000. If the data comes in strong like the ADP figure on Wednesday, it will reinforce the idea that another 75 bps interest rate increase is on the way. More important, however, are the wage gains which should show another strong 5.0% YOY increase which is underpinning overall inflation and the Fed's need to continue raising rates. The bottom line is that economic conditions have not gotten any better, and they may actually be getting worse.

Corporatewise, the story Elon Musk’s rocky takeover of Twitter (TWTR) continues. A class-action lawsuit was filed yesterday in San Francisco against the social media platform over Musk’s plan to eliminate about 3,700 jobs. Workers say Twitter is not providing enough notice in violation of federal and California law. Meanwhile, Musk reportedly has removed “days of rest” from staff calendars and plans to cancel the company’s remote work policy.

Yet another ominous sign for Big Tech: Amazon (AMZN) stated that it was going to suspend hiring across its corporate workforce. The company had already frozen new hires in its corporate retail workforce, but this new move covers a broader array of businesses there. After constantly beating its own earnings projections during the earlier days of the Covid pandemic, when people would order all sorts of goods from Amazon as they were locked down in their homes, the company is mired in a slump. Consumers aren’t buying as much stuff and have shifted more to experiences, i.e., food, hospitality and travel. Amazon warned of a rough holiday quarter, and its market cap has fallen under the elite $1 trillion level.

European stocks are edging higher to the tune of 1.50…2.17% showing uncharacteristic sustainability today, extending indices’ gains into late afternoon. The Bank of England, BoE, again decided to hike interest rates yesterday with the largest one-time increase in over 30 years. When the dust settled, the BoE's Monetary Policy Committee raised its benchmark rate by 75 basis points to a 14-year high of 3% as it attempts to combat unrelenting inflation. However, the pound sterling continued its weakening against the USD on the news, while U.K. government bonds sold off, as the central bank declared it would hike rates by less than the market expected.

The major markets in the Asia-Pacific region ended broadly higher this morning session, with the Hong Kong market outperforming. The Japanese market, which remained closed on Thursday, retreated in late reaction to the Fed’s rate hike.