While the start of the year is generally conducive to a green start for the stock markets, the first days of 2024 contrast sharply with the rally we experienced over the last two months of 2023. If a little consolidation cannot do harm, the volatility of interest rates continues to be exacerbated. Last Friday, punctuated by the publication for December of the American employment report and preliminary ISM activity indicators, the American 10-year rate experienced an initial increase of 10 bps, before correcting closely. by 15 bps to finally go up by 10 bps. Hello saloon doors...
It must be said that reading the American employment report is subject to interpretation. At first glance, this confirms the very good resilience of the American labor market. Job creation, according to the business survey, thus came out well above expectations (216k against 175k), the unemployment rate remains stable at 3.7% whereas it was expected to rise slightly to 3.8% and the annual increase in hourly wages is above the previous month when it was expected to fall. If these figures seem to confirm the resilience of employment in the United States, which also contributed to pushing rates upward initially, the reality is more nuanced and the devil is often hidden in the details. First of all, job creations for October and November were revised down by 71k. It’s quite simple, in 2023, with the exception of the month of July, all monthly estimates were subsequently revised downwards (see chart of the week). Furthermore, as over the last 6 months, although less obvious in December, job creation is concentrated in three sectors (health, leisure and government jobs). Finally, and this is perhaps the most notable element, the number of full-time workers in December plunged by 1.5 million to return to the levels of February 2023. We have to go back to the Covid crisis to find a such monthly variation. At the same time, the number of part-time workers has increased by more than 750k and the number of people holding multiple jobs has reached an all-time high. These elements are consistent with the household survey which reports more than 650k job losses over the month; the stability of the unemployment rate is saved only by the drop in the participation rate (which reflects a drop in the active population). The ISM services survey seems to confirm this vision. The employment component thus fell by 7.4 points to 43.3, a return to the levels of summer 2020. The overall index narrowly avoided moving into contraction territory at 50.6 (compared to 52.7 the previous month and 52.5 expected).
We are currently on a crest line, in line with what we have experienced in recent months, which follows the path of the ideal scenario (soft landing and drop in inflation). On the one hand, the scenario of more persistent inflation (because of geopolitical factors for example) which would see the markets reenter the “higher for longer”. On the other, the scenario of a more marked slowdown in growth which would see the end of “bad news is good news”. The financial markets seem to be looking for their scenario at the start of the year, hesitating which way to switch, let us nevertheless hope that this crest line is well marked.