US Treasury yields fell, with the 10-2-year curve now at +0.05%. Stock markets were positive, while oil and gold declined. Bitcoin surged past $100,000.

US Treasury yields declined across the yield curve this week, with the short end experiencing the largest drop. The 10-year versus 2-year Treasury yield curve is no longer inverted, now standing at 0.05%.

US stock markets ended the week in positive territory, except the Russell 2000, which fell by more than 1%. Small and micro-cap stocks dropped by 1.20% and 0.42%, respectively, while large-cap stocks rose by nearly 1%. The "Magnificent 7" stocks collectively surged by 6.45%, significantly boosting the Nasdaq 100, which gained more than 3% for the week.

The US dollar saw a slight increase against the euro, reaching 0.945956. Crude oil prices (WTI) fell by over 1%, driven by concerns of a supply surplus next year, despite OPEC+ extending deep production cuts and delaying output increases until the end of 2026. Additionally, the number of oil and gas rigs in the US increased, signalling higher output from the world’s largest crude producer. Gold prices declined by 0.71%, while cryptocurrencies remained strong, with Bitcoin gaining 3.98% for the week and surpassing $100,000 following Trump’s pro-crypto SEC nomination.

US job growth slowed, unemployment rose, and economic momentum weakened, prompting expectations of a 25bps Fed rate cut.

The US economy added 227,000 jobs, but unemployment rose to 4.2%, and there was a significant drop in both full-time and part-time employment. Private sector growth was weaker than expected, with 194,000 jobs added compared to the anticipated 205,000. Government hiring contributed 33,000 jobs, raising concerns about the long-term sustainability of this trend. The labour market shows signs of cooling, and a 25bps rate cut by the Fed is expected on December 18. Meanwhile, the US manufacturing and services sectors face weak growth due to tariff uncertainties, declining employment, and slowing economic momentum. The ISM manufacturing index remains below the expansion mark, and the ISM services index fell to its lowest in three months. Despite these challenges, consumer sentiment rose for the fifth consecutive month, driven by an increase in durable goods purchasing. Inflation expectations increased slightly, with a modest rise in long-term inflation projections.

The US added 227,000 jobs in November, with rising unemployment and concerns about job quality. A 25bps Fed rate cut is expected on December 18.

The US jobs report for November revealed a broad increase of 227,000 non-farm payrolls, in line with expectations despite disruptions from recent strikes and Hurricane Milton. However, unemployment rose more than anticipated, reaching 4.2%, and there was a notable drop in both full-time and part-time employment. Full-time jobs fell by 111,000, while part-time positions decreased by 268,000, raising concerns about the quality of jobs being created. Private sector job growth also underperformed, adding just 194,000 positions compared to the expected 205,000. The government, however, continues to hire, contributing 33,000 jobs to the total. With the US debt-to-GDP ratio at 125% and a fiscal deficit exceeding 6%, this trend of government hiring raises questions about long-term sustainability. Despite the impacts of strikes and the hurricane, the underlying trend points to a cooling labour market, with a more accurate payroll figure closer to 115,000. This report supports a 25 bp rate cut by the Fed on December 18, with markets pricing in an 85% chance. A pause may occur in January, depending on the core CPI data, but the Fed is expected to continue moving toward a more neutral policy stance.

We are observing a weakening labour market and expect the Fed to implement a 25 bp rate cut on December 18. In January, they are likely to pause further cuts, awaiting the inflationary impact of Trump’s policies.

The US manufacturing and services sectors face weak growth due to tariff uncertainties, declining employment, and slowing economic momentum, despite eased inflation and improved new orders.

The US manufacturing sector continues to face significant challenges, struggling with weak production and employment amid ongoing tariff uncertainties. Although the ISM manufacturing index improved to 48.4 in November from October’s 46.5, it remains below the 50-point benchmark for expansion. Encouragingly, new orders climbed above 50 for the first time since March, reflecting some post-election clarity that may have spurred delayed purchases. However, production and employment indices stayed weak at 46.8 and 48.1, respectively. While inflationary pressures eased, with the prices paid index dropping to 50.3 due to lower energy costs, unclear trade policies and tariff-related risks continue to cloud the outlook. Supply chain disruptions, reciprocal tariffs, and broader geopolitical challenges undermine potential benefits from tariff policies, leaving manufacturers in a vulnerable position and the sector’s growth subdued.

The ISM services index fell sharply in November to 52.1 from 56.0, marking its weakest reading in three months and falling below expectations of 55.7. Though still above the neutral 50 level, the decline in business activity, new orders, and employment points to slower economic growth in the fourth quarter. The ISM employment component slid to 51.5 from 53.0, while the prices paid index remained steady at 58.2, highlighting persistent uncertainties. Combined with concerns over tariffs and election-related impacts, this cooling economic momentum underscores challenges in sustaining broader economic growth.

With weak labour market data and both manufacturing and services sectors weak, we expect a 25 bp rate cut in the upcoming meeting. Additionally, dovish signals from the Fed further support expectations for monetary easing at the December 18 FOMC meeting.

Consumer sentiment rose for the fifth month, driven by durable goods. Inflation expectations increased slightly, reflecting diverse economic outlooks across political parties.

Consumer sentiment improved for the fifth consecutive month, rising approximately 3% to its highest level in seven months, driven primarily by a significant increase in buying conditions for durable goods, which led to a more than 20% surge in the Current Economic Conditions index. However, this spike was not indicative of economic strength but rather reflected consumer perceptions that purchasing durables now would help avoid future price increases. The expectations index continued its post-election adjustment, rising for Republicans and falling for Democrats, while Independents remained close to the national average. This shift aligns with changes in underlying economic expectations, rather than partisanship alone. For instance, Democrats expressed concerns that anticipated policy changes, such as tariff hikes, could spur inflation, while Republicans expected a significant reduction in inflation under the next president. As a result, national sentiment and expectations continue to mirror the collective economic outlook of the American population. Overall, year-ahead inflation expectations increased from 2.6% to 2.9%, marking the highest reading in six months but still within the pre-pandemic range of 2.3% to 3.0%. Long-term inflation expectations slightly decreased from 3.2% to 3.1%, remaining modestly above the pre-pandemic range.

We previously discussed this rebound and remain confident that consumer confidence will continue improving through year-end. However, long-term inflation expectations may rise modestly further.