According to just released data, the seasonally adjusted non farm payroll in the United States in December was 256000, significantly exceeding market expectations of 160000 and reaching a new high since March 2024. The manufacturing employment in the United States changed by 13000 people in December, with an expected 5000 people and a previous value of 22000 people.

The number for November has decreased from 227000 to 211000. The unemployment rate was originally expected to remain at 4.2%, but has now dropped to 4.1%. The annual average hourly wage growth rate slightly slowed down from 4% to 3.9%. This data supports the expectation that the Federal Reserve may maintain interest rates unchanged in the long term, thereby fueling the bond sell-off that has been pushing up yields. The yield of 10-year treasury bond jumped to 4.783% from 4.695% before the data was released. The yield of two-year treasury bond is 4.381%, which will be the highest settlement price since last September.

After the release of non farm payroll data, the US dollar index jumped about 90 points, reaching a high of 109.9699%. Spot gold quickly plummeted by $15, falling below the 2670 level and hitting a low of $2663.96 per ounce. The S&P 500 index futures fell slightly after initial digestion of data, as strong labor market data may lead to a longer tightening path of Federal Reserve policy.

The price of gold fell under pressure after the data was released, constrained by the strong performance of the US dollar and the rise in US bond yields. The strong rise of the US dollar index further diminishes the attractiveness of gold.

According to CME's "Federal Reserve Watch", the probability of the Federal Reserve keeping interest rates unchanged in January after the data is released is 97.3%, and the probability of cutting interest rates by 25 basis points is 2.7%. The probability of maintaining the current interest rate unchanged until March is 74.0% (59.6 before non farm payroll), the probability of reducing interest rates by 25 basis points cumulatively is 25.4% (37.9% before non farm payroll), and the probability of reducing interest rates by 50 basis points cumulatively is 0.6% (2.5% before non farm payroll).

Institutional perspective

Gregory Faranello, Head of US Interest Rate Trading and Strategy at AmeriVet Securities, stated that this is a highly reliable report that supports market expectations for the Federal Reserve to skip this month's meeting or even more. At the time of the handover of two governments, this is also an important number. The focus has now shifted to inflation. With the new government taking office, higher inflation data and a strong job market will increase calls for interest rate hikes.

The Wall Street Journal commented on the US non farm payroll data, stating that the US added 256000 jobs last month and the unemployment rate slightly decreased. This is much higher than a previous survey result, where economists expected non farm employment to be 155000 in December. The unemployment rate of 4.1% is better than the expected 4.2%. The unemployment rate is approaching what Federal Reserve officials consider to be a long-term sustainable level, and Federal Reserve Chairman Powell has stated that he believes there is no need for further cooling in the labor market. After rising in the first half of 2024, the unemployment rate seems to have stabilized since this summer, easing concerns last autumn about a possible economic downturn.

Market analyst Enda Curran said that although this is not the final data for 2024 and is likely to be revised, it confirms that the economic situation in the United States is still good, companies are recruiting, and job opportunities are abundant. The downside is that people have started to worry that the progress of inflation resistance will stagnate, and these data do not support the dovish viewpoint.

Michael Brown, Senior Research Strategist at Pepperstone, stated that I believe the non farm payroll report will only encourage the continued upward trend of the US dollar, which has been a market preference for some time. Of course, it will help strengthen the theme of "American exceptionalism" and should make the Federal Reserve relatively hawkish compared to other members of the G10 group. The biggest risk facing the bullish view of the US dollar is that market participants may seek to take profits/reduce positions before Trump's inauguration ceremony early next week.