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In December, there will be two major events. First, the U.S. non-farm employment data for November will be released on December 8th at 8:30 AM Eastern Time. Following that, the final FOMC interest rate decision meeting of the year will take place on December 13th at 2:00 PM Eastern Time. Recently, the market has been expecting that the Federal Reserve has completed its rate hike cycle and will begin to cut interest rates earlier than anticipated. Please stay tuned for the upcoming interest rate decision meeting.

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• FOMC Results: As expected by the market, the Federal Reserve kept interest rates unchanged for the third consecutive monetary policy meeting. However, there were some adjustments to the rate guidance, indicating a softer stance towards future rate hikes. The Fed stated that it will consider any additional tightening measures that may be necessary and acknowledged the slowdown in inflation over the past year. The dot plot revealed that more than half of the Fed officials expect at least three rate cuts next year, aligning with the median forecast of a three-rate cut expectation. In contrast, the latest economist survey conducted by the media suggested that the Fed would only cut rates twice next year. Fed Chair Powell, in the post-meeting press conference, mentioned that it is premature to speculate on the timing of monetary easing. However, he did disclose that the prospect of rate cuts was discussed during the meeting, stating that rate cuts were "clearly a topic of discussion." Following the dovish signal from the Fed, US stocks, US bonds, and gold all rallied, while the US dollar declined.

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• NFP (Non-Farm Payrolls) Results: In November, the United States saw an increase of 199,000 non-farm jobs, surpassing the market expectation of 180,000; the unemployment rate for November was 3.7%, lower than the anticipated 3.9%. The better-than-expected non-farm data for November, coupled with a robust job market, reduced expectations for interest rate cuts. Consequently, US Treasury bond prices fell, inflation expectations receded, and the market anticipated that the Federal Reserve would maintain higher interest rates for a longer period. Investors should closely monitor the developments of this week's Federal Open Market Committee (FOMC) meeting to understand the potential monetary policy measures the Federal Reserve may adopt under the current economic conditions.

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FOMC market expectations
As of December 11th, the probabilities for target interest rate adjustments in this meeting are as follows:

• 5.25% - 5.50%: 97.1% (a decrease of 1.7% from last week's 98.8%)

• 5.50% - 5.75%: 2.9% (an increase of 1.7% from last week's 1.2%)

Based on the above data, the market has already anticipated that there is no possibility of a rate hike in this meeting. It is widely expected that the Federal Reserve will continue to maintain the target interest rate within the range of 5.25% - 5.50%, with only a very low probability of a rate increase.

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Recently, several Federal Reserve officials have made speeches, with some hawkish officials gradually shifting to a more dovish stance, believing that maintaining high interest rates is sufficient. The market will focus on the economic forecasts and dot plot released during this meeting. The dot plot released at the end of the third quarter predicted a 50 basis point rate cut next year, but now the general expectation is that the rate cut will be brought forward and the number of rate cuts may increase. Federal Reserve Chairman Jerome Powell's press conference may also provide more information on rate cuts, potentially causing significant market fluctuations.

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October NFP Review

Following the unexpected surge in non-farm employment in September, October data hit a new low since 2021, falling short of the anticipated 150,000 people. Although individual months occasionally see spikes, the overall trend shows a gradual decline in employment. The unemployment rate also reached a new high of 3.9% since 2022.

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The market generally believes that the job market has begun to cool down, and with inflation data gradually falling, expectations for the Federal Reserve to complete its rate hike cycle are growing. Some even think the Fed will start cutting rates ahead of schedule, causing the US dollar index to continuously break lower and gold prices to surpass recent highs, reaching around $2,052. The Nasdaq also broke through the 16,000 mark. This non-farm payroll data release is crucial and may bring surprises to the final interest rate meeting of the year.

 

Please stay tuned for December 8th at 8:30 AM Eastern Time!

 

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Market Expectation

The U.S. non-farm employment in November increased by 175,000 people, compared to the previous figure of 150,000 people. The U.S. unemployment rate for November remained unchanged at 3.9%.

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Why pay attention to interest rate decisions

• Barometer of the global economy: The Federal Reserve is one of the most important central banks globally, and its monetary policy has a profound impact on the global economy. When the Fed adjusts interest rates, it implies that the global monetary policy environment may change, affecting investors' investment decisions. Therefore, paying attention to the Fed's interest rate decisions helps investors better grasp the global economic pulse and provides an essential basis for investment decisions.

• Impact on the foreign exchange market: The Fed's interest rate decision has a significant impact on the foreign exchange market. When the Fed adjusts interest rates, the US dollar exchange rate often fluctuates. For investors, paying attention to the Fed's interest rate decision helps predict exchange rate trends and make wise investment decisions in the foreign exchange market.

• Monetary policy expectations: The Fed's interest rate decision reflects its judgment on the economy and its monetary policy stance. By paying attention to interest rate decisions, investors can understand the Fed's expectations for the future economy and predict future monetary policy trends.

• Signal transmission function: The Fed's interest rate decision sends important signals to the market. For example, if the Fed announces a rate cut, it usually means that economic growth is slowing down and needs to be stimulated through monetary policy. Conversely, if the Fed raises interest rates, it may mean that economic growth is faster and needs to be curbed through rate adjustments to control inflation. Investors can obtain information about the economic situation by paying attention to the Fed's interest rate decision, providing clues for investment decisions.

• Global market linkage effect: As the world's largest economy, the US's monetary policy has a significant impact on other countries and regions' economies. The Fed's interest rate decision triggers a global market linkage effect, affecting the financial market performance of other countries and regions. Therefore, paying attention to the Fed's interest rate decision helps investors better grasp global market dynamics and provides strong support for investment strategies.

 

In terms of the impact on financial markets

• Stock market: Generally speaking, rising interest rates increase corporate financing costs, squeezing their profit margins and negatively affecting the stock market. However, in the current economic recovery context, a rate hike may indicate the Fed's confidence in the economic outlook, providing positive support for the stock market. If the Fed decides to maintain interest rates unchanged on September 20th, the market will continue to benefit from the dividends brought by low interest rates, and the stock market is expected to continue its upward trend. Conversely, if interest rates are raised, we need to closely monitor the market's reaction to the magnitude and pace of rate hikes and corporate earnings performance to determine the stock market's direction.

• Bond market: Rising interest rates usually mean falling bond prices and rising yields. If the Fed decides not to raise interest rates, market expectations for future rate hikes will decrease, and the bond market is expected to remain stable. However, if interest rates are raised, especially beyond market expectations, it will put significant pressure on the bond market, leading to falling bond prices and rising yields.

• Currency market: Interest rate decisions affect the US dollar exchange rate, which in turn affects other currencies' exchange rates relative to the US dollar. If the Fed decides to maintain interest rates unchanged, the US dollar may continue to weaken, benefiting emerging market currencies. However, if interest rates are raised, especially beyond market expectations, the US dollar may strengthen, putting pressure on emerging market currencies.

• Commodity market: Gold, as a safe-haven asset, is affected by changes in the US dollar exchange rate and interest rates. If the Fed decides not to raise interest rates, the gold market may benefit from the weak US dollar, and prices are expected to rise. However, if interest rates are raised, especially beyond market expectations, gold prices will face pressure and may decline. Investors should closely monitor gold price trends to seize investment opportunities.

 

 

What is the FOMC
The Federal Open Market Committee (FOMC) is the core institution of the US Federal Reserve System, primarily responsible for formulating US monetary policy to achieve a balance between economic growth and price stability. Specifically, the FOMC aims to achieve economic development and price stability goals by adjusting monetary policy. The New York Federal Reserve Bank is responsible for executing FOMC's monetary policy decisions. Federal Reserve official website: https://www.federalreserve.gov/

 

The FOMC consists of 12 members, seven of whom are Fed Governors, the President of the New York Federal Reserve Bank occupies eight seats, and the other four seats are held by the presidents of the other 11 Federal Reserve Banks on a rotating basis. The FOMC is responsible for formulating and implementing open market operations and is one of the most important institutions in the Federal Reserve System. The FOMC holds eight meetings per year, one every six weeks. In addition to announcing policy statements and holding press conferences, it also releases dot plots and economic forecasts at the end of each quarter.

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What is a dot plot
A dot plot is a chart released by the Federal Reserve during interest rate decision meetings, displaying the expectations of the Federal Open Market Committee (FOMC) members for the federal funds rate trajectory over a certain period. Each dot represents a committee member's prediction for the federal funds rate at a specific year-end. The dot plot helps the market understand the Fed's interest rate trends and anticipate potential monetary policy changes.

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What does an economic forecast include
At each interest rate decision meeting, the Federal Reserve makes predictions for important economic indicators such as economic growth, unemployment rate, and inflation over a certain period, based on analyses of the global economic situation and domestic economic environment. These forecasts help the Fed formulate appropriate monetary policies to achieve its dual mandate of price stability and maximum employment.

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Monetary Policy Press Conference
The Fed Chair will hold a press conference at 2:30 PM Eastern Time to provide a detailed interpretation of the latest interest rate decision.

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1. Interest rate decision review: First, the Fed Chair will review the process of this interest rate decision, including a comprehensive consideration of various economic data, market expectations, and Fed policy objectives. The focus of this meeting will be on key factors such as inflation, employment, and economic growth, to provide a deeper explanation of the reasons for the Fed's decision.

2. Economic outlook: The Fed Chair will share views on future economic development, including expectations for inflation trends, the job market, and economic growth. In addition, potential risk factors, such as a global economic slowdown and geopolitical tensions, will be discussed for their potential impact on the US economy.

3. Monetary policy stance: The Fed Chair will explain the stance on monetary policy, including hawkish and dovish views. Hawks tend to raise interest rates to curb inflation, while doves prefer to keep interest rates stable to support economic growth. The Fed Chair will explain the balance between these two stances and clarify the direction of possible policy adjustments in the future.

4. Market impact: The Fed Chair will discuss the impact of this interest rate decision on the stock market, bond market, currency market, and commodity market. Market participants will closely follow these analyses to adjust their investment strategies flexibly.

5. Q&A session: Finally, a Q&A session will be held, during which the Fed Chair will answer questions from reporters and analysts on-site. This session will provide more information about the Fed's policy and economic outlook for the market.

 

In summary, this month's FOMC meeting may seek a balance between hawkish and dovish stances to achieve its dual goals: promoting maximum employment and maintaining price stability. Investors should always pay attention to the meeting results and Fed Chair Powell's speech to better discern the future direction of monetary policy.

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What is NFP
Non-farm employment data is an important economic indicator published monthly by the US Department of Labor, officially known as "Non-Farm Payrolls" (NFP). This data reflects the employment situation in the non-agricultural sectors of the United States, including industries such as manufacturing, construction, and services, but excluding agriculture, household employment, and non-profit organizations. Non-farm employment data is significant for analyzing the health of the US economy, as it directly reflects changes in economic activity and labor market demand.

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The explanation of the US NFP report
The non-farm employment report is one of two surveys conducted by the US Bureau of Labor Statistics, which tracks US employment in a data release called the "Employment Situation Report." These two surveys include:

• Establishment survey: This survey provides detailed information on non-farm employment, tracking the number of new jobs created by industry, average hours worked, and average hourly earnings. This survey forms the basis for the total non-farm employment population reported each month.

• Household survey: This survey breaks down employment numbers by demographic, studying employment rates by race, gender, education level, and age. This survey forms the basis for the monthly unemployment rate reported.

 

 

When is the NFP released
The US Bureau of Labor Statistics typically releases the non-farm employment report at 8:30 AM (Eastern Time) on the first Friday of each month. The Bureau of Labor Statistics publishes the establishment survey and household survey together as the Employment Situation Report, covering the labor market for the previous month.

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4 key data points to watch in the NFP report
Investors pay particular attention to several data points in the employment report:

• Unemployment rate: The unemployment rate is one of the key indicators in the employment report, representing the proportion of people seeking work but not finding it in the total labor force. The unemployment rate reflects the state of the economy and has reference value for policy-making by governments and businesses. A low unemployment rate means a tight labor market, and companies may need to raise wages to attract and retain employees; a high unemployment rate indicates a loose labor market, giving companies more options in recruitment.

• Employment sector activity: The employment report provides a detailed analysis of the employment situation in various sectors, including manufacturing, construction, and services. This data helps investors understand industry trends and labor demand. Employment growth rates may vary across industries, providing guidance for investors in industry allocation.

• Average hourly wage: The average hourly wage is an indicator of wage levels in the labor market. When the average hourly wage increases, it means that workers' incomes are rising, which may affect consumption and inflation. Investors can gauge the wage situation in the labor market and consumers' purchasing power by observing changes in average hourly wages.

• Non-farm employment report revisions: The non-farm employment report may be revised after its initial release based on new data. Revised data better reflects the actual employment situation and has higher reference value for investors. Investors should pay attention to revisions in the non-farm employment report to have a more accurate grasp of the economic situation and labor market. 

 

In addition to the above data points, there are other data worth paying attention to, such as labor force participation rate, the proportion of long-term unemployed, and changes in full-time and part-time employment, which are also significant for investors analyzing the economic situation and market trends.

 

 

How does NFP data affect the market?
Non-farm employment data can impact the market in various ways, with specific effects depending on the state of the economy and financial markets.

• Monetary policy: When non-farm employment data is better than expected, the job market is strong, the unemployment rate decreases, and inflationary pressure may rise. In this case, central banks may consider raising interest rates to curb inflation. Rate hikes can affect economic growth and influence corporate earnings and consumer confidence. Conversely, if non-farm employment data is weak and the unemployment rate rises, central banks may consider cutting interest rates or implementing loose monetary policy to stimulate the economy. Rate cuts or easing policies can provide support for asset prices and increase corporate investment willingness.

• Stock market: Better-than-expected non-farm employment data may boost market confidence and drive stock market gains. However, expectations of rate hikes may put pressure on the stock market, as higher interest rates increase corporate financing costs. On the other hand, weak non-farm employment data may dampen market confidence and lead to stock market declines. But if the market expects central banks to implement loose monetary policy, the stock market may be supported, as easing policies help reduce financing costs and stimulate economic growth.

• Foreign exchange market: Better-than-expected non-farm employment data may benefit the US dollar, as the market may anticipate a Fed rate hike. Higher interest rates increase the appeal of the US dollar, leading to capital inflows into dollar-denominated assets. Conversely, if non-farm employment data is weak, the US dollar may be under pressure, and other currencies may appreciate relative to the dollar. In this situation, investors may seek other currencies as safe havens or investment opportunities.

• Commodity market (such as gold): Better-than-expected non-farm employment data may put pressure on safe-haven assets, as market risk sentiment increases and the US dollar strengthens. Gold prices may decline, as investors shift funds to higher-risk assets. However, if non-farm employment data is weak, safe-haven assets like gold may benefit, as market risk sentiment decreases and the US dollar weakens. In this case, gold prices may rise, as investors seek safe-haven assets to hedge against risks.

 

 

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