There’s been lots of chatter on the Sahm
Rule Indicator lately, so let’s see
what’s that about. The Sahm Rule Indicator signals the start of a recession
when the three-month moving average of the national unemployment rate (U3)
rises by 0.50 percentage points or more relative to the minimum of the
three-month averages from the previous 12 months. The minimum three-month
average from the previous 12 months is at 3.5%, so we will need a spike to 4.3%
in the next report to bring the three-month average to 4.0% and reach the 0.50
threshold. With such a spike though, we won’t need to look at the indicator to
conclude that a recession might have already started.
Switzerland CPI YoY
Tuesday
The Swiss CPI Y/Y is expected to remain
unchanged at 1.7% vs. 1.7% prior,
while the M/M measure is seen at -0.1% vs. 0.1% prior. The inflation rate in
Switzerland has been in the SNB’s 0-2% target for a long time for both the
headline and core measures. The central bank is unlikely to hike even if we
get a small beat as the data might be distorted due to temporary rent and
energy price increases.
US Jobless Claims
Friday
US ISM Services PMI
US Job Openings
Wednesday
The US Job Openings is expected to fall to
9.350M vs. 9.553M prior. The labour market has been showing clear signs of weakening lately and
despite the volatility in Job Openings, the trend is self-explanatory. This
will be the first major US labour market report for the week and it’s highly
likely that it will be market moving.
The BoC is expected to keep interest rates
steady at 5.00% vs. 5.00% prior. This move is supported by the recent Governor
Macklem’s comments where he said
that “interest rates may now be restrictive enough” and the CPI
report where all the figures
fell further, especially for the underlying
inflation measures, which is what the BoC is most focused on. Moreover, last
week’s labour
market report, despite being good,
showed another increase in the unemployment rate.
The Average Hourly Earnings Y/Y is
expected to cool further to 4.0% vs. 4.1% prior, while the M/M measure is seen
ticking up to 0.3% vs. 0.2% prior. As a reminder, the last report missed
expectations across the board with all measures pointing to weakness like the
increase in the unemployment rate and the decrease in average weekly hours
worked.
The US NFP is expected to show 175K jobs
added compared to 150K in
October and the Unemployment Rate to remain
unchanged at 3.9%. The culprit for the pickup in growth is expected to be
attributed to the end of the United Auto Workers strikes in October which
weighed on the Manufacturing payrolls in the prior report.
The US Jobless Claims continue to be one
of the most important releases every week as it’s a more timely indicator on
the state of the labour market. Initial Claims keep on hovering around cycle
lows, which shows us that layoffs have not yet picked up notably, but
Continuing Claims are now rising at a fast pace and that’s indicative of people
finding it harder to get another job after being laid off. This week the
consensus sees Initial Claims at 223K vs. 218K prior,
while there’s no estimate at the time of writing for Continuing Claims,
although the last week’s number was 1927K vs. 1841K prior.
UPCOMING EVENTS:
Monday:
Switzerland CPI.
Tuesday: Tokyo
CPI, China Caixin Services PMI, RBA Policy Decision, Eurozone PPI, Canada
Services PMI, US ISM Services PMI, US Job Openings.
Wednesday:
Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision.
Thursday: China
Trade data, Switzerland Unemployment Rate, US Challenger Job Cuts, US
Jobless Claims.
Friday: Japan
Wage data, US NFP, University of Michigan Consumer Sentiment.
Monday
The RBA is expected to keep the cash rate
unchanged at 4.35% after they hiked
by 25 bps in November. RBA’s Governor
Bullock has kept a hawkish tone recently as the central bank is now more
worried about inflation expectations getting out of hand. The data, on the
other hand, has been mixed but skewed towards weakness as the PMIs
fell further into contraction and the Monthly
CPI missed expectations across the board,
although the Trimmed Mean measure fell by just 0.1%.
US ADP
The US ISM Services PMI is expected to
increase to 52.0 vs. 51.8 prior.
The recent S&P
Global Services PMI beat expectations, but
the most notable take from the report was the line saying that “as a result
of subdued demand and decreasing backlogs, companies reduced their workforce
for the first time since June 2020, affecting both service providers and
goods producers. Cost pressures eased, with input prices rising at the
slowest rate in over three years”.
The University of Michigan Consumer
Sentiment is expected at 61.8 vs. 61.3 prior. This indicator measures how the consumers see their personal finances
compared to the Consumer Confidence which is more weighted towards the labour
market outlook. It’s been falling steadily since June while inflation
expectations spiked higher in the recent couple of months despite the huge drop
in gasoline prices. Nevertheless, the NFP will overshadow this report, so it could
be market moving only if it’s in line with the NFP release.
BoC
Thursday
The US ADP is expected to show 128K jobs
added in November compared to 113K in
October. The market at the moment is more
focused on the labour market weakness, so a strong report might trigger
some reaction but it’s likely to be reversed soon after as the market will look
forward to the NFP release.
