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Dec 2, 2016

Bloomberg Markets - December 2, 2016: 5 Things To Start Your Day

Bloomberg Markets

It's Jobs Day

Jobs day

While this week has been a particularly good one for bullish data from around the world, today will see the biggest test of that trend when the U.S. Bureau of Labor Statistics releases November's jobs data at 8:30 a.m. ET. Expectations are that employers added a net 180,000 workers in the month, keeping the unemployment rate at 4.9 percent. Average hourly earnings growth is expected to match October's 2.8 percent gain, which was the fastest pace since 2009. With the futures-implied probability of a rate hike at this month's Federal Reserve meeting remaining at 100 percent, it would most likely take a huge miss on today's number to move the dial on expectations there. 

European politics

Italians go the polls on Sunday in a referendum on political reform, with the stakes high as Prime Minister Matteo Renzi has said he will resign should he lose. While traders, already shaken from a year of political shocks, are concerned about the fallout if Renzi quits, at least this time they should be prepared for it as polls have consistently shown a 'no' victory most likely. Also on Sunday, there is a rerun of the Austrian presidential election, with two candidates at opposite ends of the political spectrum competing for the largely ceremonial post. There was a major development in French politics yesterday when President Francois Hollande made the surprise announcement that he would not be standing for a second term in office.

Not buying Trump

Erstwhile bond king Bill Gross has said that he isn't buying the Trump rally, as he doesn't see the changes proposed by the President-elect providing long-term stimulus to the economy. As U.S. Treasury yields continue to rise, one aspect of the Trump team's plan may already be coming under pressure. Steven Mnuchin has said he would look at taking advantage of historically low rates in order to sell 50- and 100-year bonds just as the window for that seems to be closing.

Markets slip

Overnight, the MSCI Asia Pacific Index lost 0.4 percent while Japan's Topix index also dropped 0.4 percent following a strong November rally. In Europe, the Stoxx 600 Index was 1.1 percent lower at 5:21 a.m. ET as investors await the results of Italy's referendum. S&P 500 futures were .

Mad Dog, and the Englishman

President-elect Donald Trump said yesterday he would appoint General James 'Mad Dog' Mattis as the nation's defense secretary. Trump is also said to narrow the search for Director of National Intelligence to three candidates. In the U.K., former Conservative Party member and London mayoral candidate Zac Goldsmith lost his seat to anti-Brexit Liberal Democrat Sarah Olney in a by-election. May's government said the result "doesn’t change anything."

Here's what you should read today

OPEC deal hinged on 2 a.m. call and it nearly failed.
Worst-case scenario no sweat for Chinese banks: PineBridge
Shredding Iran nuclear deal could prove harder than Trump thinks.
November was a massive month for markets around the world.
South Africa junk rating might be hours away and last years.
Yes, there’s an award for best banknote. No, the U.S. never wins.

And finally, here’s what Joe’s interested in this morning

It's Jobs Day today, but there seems to be a little bit less interest in the report than normal. Part of it is that the U.S. political transition is still far and away the biggest story in the world right now. Also a December Fed rate hike seems like a total lock, so people don't think this report can influence too much. But don't let yourself get distracted! There are important reasons why today's report matters. For one thing, the pace of wage growth continues to be a big deal. Inflation and wage growth will be important determinants of how many times the Fed raises rates in 2017. Economists are looking for 2.8 percent year-over-year average hourly earnings growth, which would tie last month for the best level since the crisis. If it comes in even hotter, watch out. If it comes in cool, investors may breathe a sigh of relief over diminished pressure on the Fed to hike fast. Another big number to watch is U.S. Labor Force Participation Rate. It's been coming up very modestly over the last year. As Karthik Sankaran of Eurasia Group recently noted on TV, if that number can move significantly higher, then it means there's more slack in the labor market than people realize. That in turn means that Trump can boost the economy more through fiscal stimulus, without the need for an aggressive monetary offset from Janet Yellen. So just because there's likely to be nothing that will change the immediate trajectory of things in today's report (and who knows -- there might be), you should still pay close attention to the details.