This is our weekly market update.
As we count down to the end of the year, U.S. stocks closed higher on Friday, with the S&P 500 and Nasdaq notching their highest closing levels since early 2022 and the Dow notched its longest weekly winning streak since 2019.
A robust U.S. jobs report fuelled investor optimism about a soft landing for the economy and so investors pared bets that the Federal Reserve will cut interest rates in March after a Labor Department report showed nonfarm payrolls increased by 199,000 jobs in November, compared with an estimated increase of 180,000.
The unemployment rate slipped to 3.7%, while average earnings edged up to 0.4% on a monthly basis, compared with forecasts of 0.3% growth. The uptick in wage growth, which risks boosting inflation, muddied the optimism for rate cuts, pushing Treasury yields higher, though some economists were quick to downplay the strength of report attributed to the return of employers that were on strike.
“Were it not for the strike, November would have been somewhere around 170k and October would have been around 180,000,” Jefferies said in a Friday note.
Interest rate futures show traders widely expect the Federal Reserve to hold interest rates steady at its meeting next week. However, futures prices now imply traders mostly expect the Fed to start cutting rates in May, two months later than the March meeting many investors had been betting on in recent days.
Treasurer Jim Chalmers confirmed the Reserve Bank of Australia board should aim to return inflation to the middle of the 2 to 3 per cent target band, or 2.5 per cent. Treasurer Jim Chalmers has axed a controversial proposal requiring the Reserve Bank of Australia to give “equal consideration” to full employment and inflation as part of a new agreement that may mean interest rates stay higher for longer.
The backdown followed warnings by the likes of former RBA governor Ian Macfarlane and former treasurer Peter Costello, who said the proposed wording was vague and would make the RBA less accountable for fighting inflation.
IFM Investors chief economist Alex Joiner said targeting the middle of the band made the prospect of a rate cut unlikely until late 2024, given the RBA’s current inflation forecasts do not show it achieving 2.5 per cent inflation at any point in the next couple of years.
