Market Insights Today: Hot U.S. labor market data saw equities lower on Thursday, all eyes on today’s U.S. employment report – 6 January 2023

Strong ADP Employment data and declines in jobless claims point to a resilient U.S. labor market

The ADP employment report came in much stronger than expected with a gain of 235K jobs in the U.S. private sector employment in December versus the consensus estimate of 150K. The job gain in November was also revised up to 182K from the previously reported 127K. Service sector jobs increased by 213K, led by the leisure and hospitality industry with a job gain of 123K. Being consistent with the strength of employment growth in the ADP report, initial jobless claims fell to 204K (below the 225K expected) in the week ended Dec 31, 2022, from 223K (previously reported at 225K) the prior week. Continuous claims also fell to 1694K, below the consensus estimate of 1728K and the prior week’s 1718K (previously reported at 1710K).

Street estimates of December Non-farm payrolls at +203K, unemployment rate at 3.7%, and average hourly earnings at +0.4% M/M, +5.0% Y/Y

The Bloomberg consensus estimate of December Non-farm payrolls which is scheduled to release today is a job gain of 203K, only a moderate decline from November’s 263K despite recent headlines of layoffs at large corporations and strikes. The JOLTS job openings, ADP employment, and jobless claim data released this week are consistent with solid job growth in December. The unemployment rate is expected to stay unchanged at 3.7% and average hourly earnings are expected to grow 0.4% M/M (last: 0.6%) and 5.0% Y/Y (last: 5.1%).

St. Louis Fed President James Bullard delivered a presentation “The Prospect for Disinflation in 2023” at an event organized by the CFA Society of St. Louis. Bullard’s remarks were less hawkish than his previous comments and those made by Fed presidents George and Bostic earlier on the same day. He said, “while the policy rate is not yet in a zone that may be considered sufficiently restrictive, it is getting closer”. He also added that “the front-loaded Fed policy has helped market-based measures of inflation expectations return to relatively low levels” and “these factors may combine to make 2023 a disinflationary year” as “during 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes”.

Eurozone inflation, scheduled to release today, is set to temporarily fall

December inflation has dropped in the largest Eurozone countries (Spain, France, and Germany). It is expected that the eurozone CPI to decelerate as well and fall to single digits for the first time in three months. The economist consensus expects CPI to come at 9.7 % Y/Y against 10.1 % in November. This is partly attributed to a drop in energy inflation (base effects, declining oil and gas prices, and government measures in several countries to mitigate the energy bill). Based on advanced data points, we could even have a bigger drop in headline inflation than forecasted. However, this will not imply the European Central Bank will adjust its monetary stance in the short term. Inflationary pressures remain prevalent in most Eurozone countries. There are also real fears that the fall in energy inflation is only temporary.

Amazon is laying off more than 18,000 employees

The CEO of Amazon (AMZN), Andy Jassy, announced that the company is enlarging its previous plan to lay off 10,000 employees to more than 18,000 employees. The company has about 1.5 million employees. Jassy said that the company had hired too many people during the pandemic.

Caixin China PMI Services rose to 48.0 in December

December Caixin China PMI Services climbed to 48.0 from 46.7 in November, beating the consensus estimate of 46.8 but remained in the contractionary territory. Business and new orders sub-indices improved while the new export orders sub-index failed to sustain the expansion in November and fell back into contraction in December.

China reopened its border with Hong Kong

The much-anticipated announcement of the reopening of the border between mainland China and the Hong Kong SAR finally came on Thursday and will take effect from Sunday, January 8.

First Abu Dhabi Bank explored buying Standard Charted Bank

First Abu Dhabi Bank, the largest bank in the Middle East, said it had explored a potential acquisition of Standard Chartered Bank (STAN:xlon; 02888:xhkg) but it is no longer pursuing the deal.

AIA and PICC are criticized by the Chinese regulator for inaccurate capital calculation

The China Banking and Insurance Regulatory Commission criticized the onshore units of AIA (01299:xhkg) and PICC Property & Casualty (02328:xhkg) in the mainland for failing to comply with rules in the calculation of minimum and actual capital, leading to the release of inaccurate solvency data. The share price of AIA fell 2.5% and that of PICC slid 1.1% on Thursday.

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