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The US labor market is in trouble, the dollar is losing ground

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US economic recovery is slowing; The USD is losing steam for the second week in a row.

The U.S. Bureau of Labor Statistics reported last week that nonfarm payrolls rose to 245,000, below expectations of 469,000 and 610,000 last month. Average hourly earnings rose 4.4 percent (year-over-year) in November, while they rose 0.3 percent month-on-month. The unemployment rate was at 6.7 percent in November, an improvement from 6.9 percent the previous month and beating estimates of 6.8 percent.

A sharp slowdown in employment suggests the U.S. economic recovery may take longer than originally expected. Some analysts saw the news as disappointing and interpreted it as a sign of economic problems.

The COVID-19 situation itself does not support optimistic stories as cases continue to rise. So far, the United States has reported 14,983,425 cases of the coronavirus, as well as 287,825 deaths, making it the worst affected country in the world. Hospitalizations and deaths have recently reached record levels, which may be related to the recent Thanksgiving celebrations across the country.

Paradoxically, the news was received positively by stock markets, with US stocks closing mostly in positive territory on Friday. The Dow Jones Industrial Average gained 0.83 percent on the session to close at 30,218.26, followed by the S&P 500, which gained 0.88 percent on the session to close at 3,699.12. The NASDAQ 100, which closed at 12,528.48, gained 0.49 percent during the session.

The focus is on the Federal Reserve, which is now expected to step up its bond-buying program in an effort to stimulate the US economy. This idea was given some credence by Federal Reserve Chairman Jerome Powell’s recent comments about the path the bank is taking in the near term.

“We’re going to keep our rates low and our tools going until we feel like we’re really very clearly beyond the danger that the pandemic poses to the economy,” he said.

Another fiscal stimulus is also an option. Although negotiations on a new stimulus package have yet to resume, new proposals are now being considered in the US Senate.

Markets received important and relevant data on the current state of the US economy.

Among the most relevant news was the Chicago Purchasing Managers’ Index for November, which signaled the expansion of the business sector across the states of Illinois, Michigan and Indiana. The reading remained at 58.2, below the previous month’s 61.1 and below expectations of 59. The index of pending home sales fell 1.1 percent, below forecasts for a 1 percent gain but better than the previous month’s reading.

Markit Economics reported a manufacturing PMI on Tuesday that showed the sector expanded but remained below expectations for a steeper expansion and 59.3 from the previous month.

The November employment change was reported on Wednesday, which came in at 307,000, below expectations and the previous month’s figure.

The services PMI was released on Thursday and signaled (again) slower sector expansion with a final reading of 55.9. The expectation was 56 and the previous month’s figure was 56.6.

The U.S. dollar index, which measures the greenback’s performance against a basket of its major rivals, lost ground for a second straight week, falling 1.19 percent. The dollar fell 0.65 percent last week, down 2.31 percent for November.

Many analysts attribute this weakness to the fact that investors are currently rushing to riskier assets when hopes for a vaccine are high.

Some of these analysts expect this weakness to persist into 2020 as they anticipate more monetary stimulus. Others predict that the inverse relationship between the performance and performance of the dollar and equity markets will remain relevant in the near term.

“We forecast a further 5-10% decline in the dollar through 2021 as the Fed allows the US economy to take off,” ING analysts said.

In its latest report, the Bureau of Economic Analysis said gross domestic product rose 33.1 percent (quarter-over-quarter) in the third quarter, below expectations of 33.2 percent and after a 31.4 percent decline in the second quarter.

Inflation has been low, at least compared to the Federal Reserve’s inflation target. On a year-over-year basis, the consumer price index missed analysts’ expectations, rising 1.2 percent in November after rising 1.4 percent the previous month. In monthly terms, CPI was at 0 percent, less than expected for a 0.1 percent increase and less than October’s 0.2 percent.

As mentioned earlier, the unemployment figures turned out to be disappointing, coming in at 6.7 percent in November. Although this did not meet expectations, it was lower than the previous month’s 6.9 percent.

At the moment, cash rates remain at 0.25 percent. The Federal Reserve’s upcoming cash rate announcement is scheduled for December 16.

GDP

  • On Tuesday, the Energy Information Administration will publish its short-term energy outlook.

  • The US Bureau of Labor Statistics will release its JOLTs Job Openings report on Wednesday.

  • Also on Wednesday, the Energy Information Administration will report on the level of oil reserves.

  • Core CPI data for November will be announced on Thursday, as will initial jobless claims.

  • On Friday, the US Bureau of Labor Statistics will release the producer price index.

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