Odds of an interest-rate cut at the Fed’s meeting next week jumped in the wake of disappointing November private payroll figures, with Commerce Secretary Howard Lutnick arguing President Trump’s tariffs were not to blame for the numbers.US private payrolls lost 32,000 jobs last month – a sharp downward turn mostly accounted for by small businesses, according to the ADP National Employment Report released Wednesday. In contrast, October saw an upwardly revised increase of 47,000 jobs.The November figure larg ...

The dollar index (DXY00) today is down by -0.38% at a 5-week low. The dollar was undercut by today’s weak Nov ADP report, which was dovish for Fed policy.  The dollar recovered from its worst level today after the Nov ISM services index unexpectedly rose to a 9-month high. President Trump said on Tuesday that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported last week that National Economic Council Director Kevin Hassett is seen as the likely choice to succeed Powell. ...

Group 1 - Mortgage rates have decreased slightly, with the average 30-year mortgage rate at 6.23%, down from 6.26% the previous week, and the average 15-year mortgage rate at 5.51%, down from 5.54% [1][5] - The 10-year Treasury yield, which influences mortgage rates, has been declining as expectations for a Federal Reserve rate cut in December increase [2][3] - There is growing consensus for a December rate cut, with traders estimating an 83% chance of a 25 basis-point cut at the Fed's meeting on December 9-10 [3] Group 2 - Job losses at private employers have accelerated, indicating a weakening labor market, which is contributing to the expectation of a rate cut [3] - Mortgage applications for home purchases increased by 8% compared to the previous week, indicating a slight resurgence in buyer interest due to lower mortgage rates [5] - Contract signings for homes rose by 1.9% in October from the previous month, reflecting improved market activity [5]

Core Insights - The current economic growth, driven by the AI data center boom, is not translating into significant job growth, indicating a potential disconnect between GDP growth and labor market strength [1][3] - The Federal Reserve is expected to continue cutting rates due to a weakening labor market, despite inflation being slightly above their target [4][5] - A K-shaped recovery is observed among consumers and corporations, suggesting that not all sectors are benefiting equally from the economic growth [6] Federal Reserve Expectations - The Fed's plans for rate cuts may be disrupted by labor market weaknesses, which could lead to a more stimulative approach [4][5] - A December rate cut is anticipated, with additional cuts likely in the following year as the labor market continues to weaken [5][6] - The Fed is currently above neutral and may continue to cut rates to avoid being restrictive [7] Fixed Income Market Implications - Weakening labor market conditions and potential Fed rate cuts could lead to favorable returns for fixed income investors, particularly in the front to belly of the yield curve [9][10] - The market is pricing in Fed funds forecasts that are considered too high, suggesting benefits for those taking interest rate risks [10][12] - A diversified portfolio that includes emerging markets and securitized products is recommended to capture higher yields and spread opportunities [13][24] Investment Strategies - Agency mortgage-backed securities and commercial mortgage-backed securities are highlighted as attractive sectors due to their potential for spread compression and benefits from falling interest rates [18][19] - The recently launched Eaton Vance Income Opportunities ETF (XAGG) aims to provide exposure to a barbell approach in fixed income, focusing on sectors that offer higher yields and diversification [20][21] - The ETF targets a weighted average investment grade, ensuring a balanced risk profile while seeking outperformance compared to traditional fixed income investments [22][23] Long-term Outlook - Fixed income returns are expected to be centered around current yields, with a potential for additional returns through strategic interest rate and curve positioning [26][27] - High base treasury yields are seen as a hedge against risk assets, particularly in a balanced portfolio [28][29] - Inflation is projected to stabilize around 2% in the coming year, which would benefit fixed income investors as tariff-related inflation subsides [30]

Core Viewpoint - The President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, expressed his opposition to the recent interest-rate cut by the US central bank and remains undecided on the December policy meeting's direction [1][3]. Economic Activity Insights - Kashkari noted that both anecdotal evidence and data indicated a stronger underlying resilience in economic activity than he had anticipated, suggesting a pause in rate cuts during the Fed's October meeting [2]. - He mentioned that subsequent data has shown "more of the same" for the economy, indicating a mixed outlook for the upcoming December rate decision [3]. Federal Reserve Officials' Sentiment - Kashkari's views align with other Federal Reserve officials who have recently shown skepticism regarding the necessity of another rate cut in December, with concerns about labor market weaknesses still prevalent among some policymakers [3][4]. - Financial markets have reacted to the Fed's comments, reducing the likelihood of a rate cut in December to approximately 50%, down from nearly 100% prior to the October meeting [4]. Future Rate Expectations - Following the September rate cut, Kashkari had anticipated two additional reductions in 2025, reflecting his belief that the economy was slowing more significantly at that time [5]. - He highlighted the existence of weaknesses in the labor market, particularly among low-income and sub-prime borrowers, while also noting that many corporate earnings remain strong and optimistic for 2026 [6].

Core Insights - U.S. private-sector employment has returned to growth, indicating a recovery in the labor market, although the growth rate is slower compared to earlier in the year [1] Employment Growth - The pace of employment growth in the private sector reflects ongoing concerns about the overall weakness in the labor market [1]

Market Overview - The S&P 500 index reached a record high, with only 108 companies in the green contributing to this achievement [1] - There is a noted disconnect between surging asset prices and weakness in the labor market, which the Federal Reserve will need to address [3][4] - Financial conditions are tight, yet job cut announcements have been significant, indicating potential challenges ahead [5][6] Earnings Reports - Booking Holdings reported a third-quarter adjusted EBIT of $3 billion, exceeding expectations [9] - PayPal shares rose nearly 13%, finishing the day with a 4% gain, driven by a partnership with OpenAI [11] - Nvidia's planned $1 billion equity investment in Nokia led to a 22% increase in Nokia's ADRs, highlighting a successful pivot towards AI [13] - UPS shares increased by almost 8% after surpassing profit expectations and announcing significant cost-cutting measures [14] - Wayfair experienced a 23% jump, marking its best day since January 2020, reflecting strong marketplace performance [15] Decliners - JetBlue shares fell nearly 12% due to challenges anticipated during the holiday travel season and rising fuel prices [19][20] - DraftKings and Flutter Entertainment shares declined following reports of increased competition in the sports betting market [20][21] - V.F. Corp saw a 12.2% drop after issuing third-quarter guidance that missed consensus expectations [22] Additional Earnings Insights - Mondelez reported an adjusted EPS of $0.73, slightly above the expected $0.71, but its adjusted gross margin fell short of estimates [25][26] - Frontier Communications reported third-quarter revenue of $1.55 billion, slightly above expectations, with adjusted EBIT of $637 million [28] - Visa's fourth-quarter adjusted EPS was $2.98, marginally beating the estimate of $2.97, with net revenue also slightly ahead of expectations [29][30] - Enphase reported an adjusted EPS of $0.90, beating the expected $0.65, but provided guidance for the fourth quarter that was below street estimates [31][32]

Core Insights - JPMorgan Chase & Co. reported third-quarter profit and adjusted revenue that surpassed Wall Street expectations, driven by a resurgence in dealmaking after earlier trade tensions slowed activity [1] - CEO Jamie Dimon highlighted labor market weakness and "complex forces" contributing to a more uncertain outlook [1] Investment Banking Performance - Investment banking fees increased by 16% year-over-year, with net revenue from the segment rising 17% to $19.88 billion [2] - Net income from the investment banking division climbed 21% to $6.9 billion, indicating strong performance despite geopolitical uncertainties [2] Market Division Success - The markets division achieved record revenue of nearly $9 billion, supported by stronger client engagement and financing demand [3] - Assets under management grew by 18% to $4.6 trillion, exceeding analyst estimates of $4.52 trillion due to continued net inflows and favorable market performance [3] Overall Financial Performance - Company-wide net income rose by 12% to $14.4 billion, with diluted earnings per share of $5.07 and adjusted revenue of $47.12 billion, both above analyst forecasts [4] - Net interest income increased by 2% to $24.1 billion, while provisions for credit losses rose to $3.4 billion from $3.1 billion a year earlier [4] - Dimon noted that "each line of business performed well," but cautioned about signs of softening in the U.S. economy, particularly in employment trends [4]

Economic Data and Market Reactions - The government shutdown has delayed key economic data releases, including jobless claims and the non-farm payroll (NFP) report, leading to increased focus on Federal Reserve commentary [1][2][4] - Market participants are anticipating Fed rate cuts, with over a 95% chance perceived for this month, as labor market weakness is expected to push equity markets higher [5][7] - The Challenger job cuts report showed a year-over-year drop of 25.8%, indicating a deceleration in layoffs, with reported job cuts at 54,064, significantly lower than the previous month's 85,975 [14][15] Federal Reserve Commentary - Fed members, including Logan and Goulsby, are expected to provide insights on alternative data sets due to the lack of official reports, with a focus on the ADP report and PMI data [3][11][12] - The ADP report indicated a loss of 63,000 jobs in the Midwest, reflecting a potential disconnect with the upcoming BLS data due to adjustments [9][16] - The Fed is likely to discuss the implications of the current labor market trends and their impact on inflation and economic outlook [10][11] Commodity Market Insights - Oil demand remains weak globally, with prices influenced by supply-side factors such as disruptions in Russian oil exports and refinery outages in the U.S. [21][22] - China's recent behavior of importing crude oil for storage rather than consumption suggests a weakening demand picture in the near term [22] - Seasonal trends typically lead to pricing weakness in oil and petroleum products during winter, but geopolitical risks, particularly related to Ukraine, could create upward pressure on prices [23][24]

Market Reaction to Economic Data - The market initially reacted strongly to the weak ADP report, the weakest since March 2023, and a negative revision to the previous month's report [2] - The dollar index did not react as strongly to the weak jobs data, indicating a mixed market response [4] Bond Market and Yields - Two-year Treasury yields dropped more aggressively than 10-year yields [3] - Two-year yields were down approximately 7 basis points, while 10-year yields were down about half that amount [3] - The yield curve is steepening because short rates have dropped significantly [6] - If the market closed at the current levels, it would be at a two-week low yield close in twos and a one-week low yield close in tens [6] Federal Reserve Policy Expectations - The market has upgraded the percentages for Federal Reserve easing at the remaining meetings this year [5] - The market is pricing in slightly more than 25 basis points of easing at the next meeting, technically over 100% [5] Labor Market and Inflation - Weak jobs data underscores labor market weakness, which the Fed has highlighted in relation to inflationary issues [4] - The drop in the two-year yield reflects the importance of labor market weakness to the Fed's current strategy [4]