The last non-farm night before the Federal Reserve's December decision! Bad news is good news?

The last non-farm payroll report before the Federal Reserve's December interest rate decision will be released tonight. After experiencing two hurricanes and large-scale strikes last month, Wall Street expects a significant rebound in November's non-farm employment.

At 21:30 Beijing time on Friday, the U.S. Bureau of Labor Statistics (BLS) will release the November non-farm employment report. Wall Street expects:

The consensus expectation for November's non-farm payroll increase is 220,000, up from 12,000 in October (this data is expected to be revised upward). Wall Street's forecast range is between 150,000 and 284,000, with estimates from Goldman Sachs (235,000), Bank of America (240,000), and JP Morgan (275,000) all significantly above the consensus level.

The unemployment rate is expected to remain unchanged at 4.1%, lower than the Federal Reserve's forecast of 4.4% in September.

Hourly wages are expected to rise 3.9% year-on-year, slightly lower than the previous value of 4%, and increase 0.3% month-on-month, compared to the previous value of 0.4%.

This is the last non-farm report before the Federal Reserve's interest rate meeting on December 18, so the market and analysts may pay attention to the three-month moving average increase in employment numbers to better understand potential employment trends. The market generally expects this to be 151,000, a decrease from earlier this year.

Lydia Boussour, a senior economist at EY, stated: “Increased strike activity, hurricanes, and seasonal employment changes have caused considerable disruption to employment data in recent months, making employment dynamics more difficult to interpret.” After eliminating some recent volatility factors, the data is expected to show a “healthy but slowing labor market.”

How has the U.S. job market recovered a month after the hurricanes?

Affected by the hurricanes and large-scale strikes in October, many job seekers are facing employment challenges.

However, Deutsche Bank and Citigroup expect that as these temporary factors fade, the previously affected workers will re-enter the job market, potentially bringing about 80,000 new job opportunities. Bank of America holds a more optimistic view, predicting this number could reach 100,000, and the low response rate in the October employment survey may also lead to an upward revision of that month's employment data.

Additionally, this year's Thanksgiving and "Black Friday" shopping season comes later than in previous years, which may mean that the number of workers hired in retail during the survey period (the week of November 11) will decrease. Goldman Sachs analyst David Mericle estimates that the late start of the shopping season could lead to a reduction of 15,000 retail jobs.

“Retailers report that their hiring plans for the holiday season are the second lowest since 2009,” said Boussour from EY, “We expect seasonal hiring growth to be more moderate, leading to seasonal factors overly compensating for negative impacts.”

Moreover, there are some leading indicators that are valuable references before the non-farm report is officially released:

Initial jobless claims: In the week corresponding to the BLS survey window, initial jobless claims decreased to 215,000, while continuing claims increased from 1.888 million to 1.907 million

ISM Employment Index: The manufacturing employment index rose from 44.4 to 48.1 in November, but remains in the contraction zone. This index has long been consistent with BLS manufacturing employment data. The services employment index fell from 53.0 to 51.5, maintaining expansion for the fifth consecutive month, but the pace of expansion has slowed.

"Little Non-Farm" ADP: The ADP added 146,000 jobs in November, a four-month low, and slightly below the forecast of 150,000.

"Challenger" Layoff Data: The number of layoffs in November was 57,700, an increase of 3.8% from October and a 26.8% increase from the same period last year.

Will there be a rate cut in December or not?

Currently, the vast majority of analysts predict that the Federal Reserve will cut interest rates by 25 basis points in December, with the money market pricing in a 73% probability.

The clearest signal comes from Federal Reserve Governor Christopher Waller, who stated that he is inclined to cut rates by 25 basis points in December, saying “the labor market has reached balance, and the policy remains restrictive, supporting the Fed to continue cutting rates”.

Many senior officials at the Federal Reserve have emphasized that they remain open to rate cuts and will make decisions based on all data. Chicago Fed President Austan Goolsbee, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly will speak after the non-farm report is released on Friday, and then the FOMC will enter a quiet period before the rate decision on December 18.

After the non-farm report, the November CPI and PPI inflation reports will also be released next week, which are expected to be decisive for the rate decision on December 18.

Powell stated in his speech on Wednesday: “We want to send a strong signal that if the labor market continues to weaken, we will provide support. The economy is very strong, stronger than we expected in September. The downside risks to the labor market seem small, and economic growth is certainly stronger than we imagined, with inflation rates also slightly rising. The good news is that we can be a bit more cautious as we try to find neutral (interest rate levels).”

Bad news is good news?

This statement may suggest that bad news from tonight's non-farm report could be good news for U.S. stocks.

Goldman Sachs trader John Flood believes that if non-farm employment data falls between 150,000 and 200,000, the market will view it as a positive factor, as the market has already priced in the weak employment data from October, and the negative impacts of hurricanes and strikes have now passed. If job growth exceeds 275,000, the stock market may decline, as this would keep the Federal Reserve cautious at the December meeting and possibly adopt a wait-and-see attitude in 2025 The following is the reaction matrix estimated by Goldman Sachs:

If the non-farm payrolls in November exceed 275,000: the S&P 500 index will drop at least 100 basis points;

If between 235,000 and 275,000: the S&P 500 index will drop 50-100 basis points;

If between 200,000 and 235,000: the S&P 500 index +/- 50 basis points;

If between 150,000 and 200,000: the S&P 500 index will rise 50-100 basis points;

If between 100,000 and 150,000: the S&P 500 index will rise 0-100 basis points;

If below 100,000: the S&P 500 index will drop 0-50 basis points.

JP Morgan's market intelligence department is more optimistic, predicting 275,000 new non-farm jobs in November, higher than the market consensus expectation. Additionally, the department believes that as policy uncertainty fades, the U.S. economy will accelerate growth in the first half of 2025. Therefore, the team holds a "tactically bullish" stance before the end of the year.

How high can U.S. stocks rise before the end of the year? JP Morgan's equity derivatives team predicts that the S&P 500 index has an upside potential of 2.8%-4.4% from Friday's close. Corporate earnings in the fourth quarter are expected to remain strong, with the market currently pricing in a 12.0% growth in earnings per share, higher than the 5.8% in the third quarter.

Bank of America stated, if the November non-farm report is stronger than expected, the theme of "American exceptionalism" will continue to boost U.S. stocks. This theme has lingered in the market since Trump won the election and has driven bullish sentiment, with the S&P 500 index continuously reaching new highs, leading global stock markets.

Origin: Wall Street Journal