Jobs day is here

Job growth probably slowed in November, but it was not likely to have been sluggish enough to stop the Fed from raising interest rates this month.

Friday's jobs report is one of the most anticipated employment reports of the year — the most important data the Fed will see before it meets Dec. 15 and 16 to consider its first rate hike in nine years.

Economists expect 200,000 nonfarm payrolls and an unchanged unemployment rate of 5 percent, after a surprisingly strong 271,000 new jobs last month. They also expect average hourly wages to rise 0.2 percent, after a surprise jump of 0.4 percent in October.

Besides the jobs number, markets are also watching the oil market after two volatile days. OPEC is meeting in Vienna Friday and while it is not expected to cut production, reports that it might helped drive oil prices higher Thursday and Friday after Wednesday's sharp sell-off. Saudi Arabia's oil minister knocked down the idea of production cuts Friday, while Venezuela warned of $20 oil if the Organization of Petroleum Exporting Countries does not cut back.

Trader on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Trader on the floor of the New York Stock Exchange.

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As for the jobs data, economists say it could be a weaker-than-expected non-farms payroll number and still not sway the Fed from a rate hike.

"I think the signs are more favorable than not. I think it's more likely than not that they go," said Michael Hanson, senior economist at Bank of America Merrill Lynch. "I wouldn't put it at 100 percent but I think it's more likely than not at this stage that they go. The markets are looking past what happens next. What's going to get them to go faster or slower. The market is pricing in two or three (hikes next year). The Fed is signaling a little faster."

Hanson said he expects 180,000 jobs, and it will be the overall strength of the jobs report that will matter most, including things like wages, hours worked and the long-term unemployed. "If we had 140,000 or 150,000 (jobs), I still don't think the Fed would bat an eye," he said.

The jobs report, released at 8:30 a.m. ET, is coming against a wild backdrop of cross currents in financial markets. Markets have been fretting that some U.S. data, like ISM manufacturing, looks a little too weak in a rate-hiking environment. Yet, the market is pricing in a first rate hike and expects it to happen on Dec. 16. There is also international trade at 8:30 a.m. ET.

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"I think it's kind of marginalized at this point," said Diane Swonk, chief economist at Mesirow Financial, of the jobs report. "The threshold for the Fed is pretty low on the jobs number. If we had a major undershoot, they made it clear they could go anyway and one month a trend does not make."

Swonk expects 185,000 payrolls, but she sees average hourly wages rising to 2.4 percent on a year-over-year basis. The consensus level is closer to 2.2 percent, and the October increase was 2.5 percent.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, expects just 150,000 jobs, and a higher unemployment rate at 5.1 percent. "The growth rate is slowing. We're not going back to the high 200,000s. I think the trend is going to be closer to 140,000, 150,000 going forward, in a world where you have a lot of volatility, and the economy can't do more than 2 percent."

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The Fed's anticipated move to normalize interest rates had encouraged investors to buy dollars, and at the same time, expectations of more easing by the European Central Bank put downward pressure on the euro and European yields. But the ECB shocked markets Thursday when it did not announce as much easing as the market had expected, and markets traded wildly. The euro ripped higher, gaining more than 3 percent to 1.098, its highest level in a month.

The dollar index fell 2.2 percent, in its worst performance since March 2009. At the same time, bond yields reversed quickly with European sovereign debt yields rising. Treasury yields moved with unusually wide swings. The 10-year Treasury yield moved in the biggest range since February. It was at 2.31 percent in late trading, after falling below 2.15 earlier in the week on soft manufacturing data. Stocks fell sharply with the S&P 500 down 1.4 percent in its worse loss since late September. The S&P closed at 2,049.

ECB Presdient Mario Draghi speaks before the Economic Club of New York at midday Friday, a speech that will be closely watched. The ECB announcement Thursday unhinged one of the largest bets on Wall Street - long dollar, short euro.

Stock futures were higher ahead of the jobs report Friday, while the dollar strengthened as the euro traded slightly lower, to $1.08. Treasury yields were lower.

"Had the dollar rallied (Thursday), that could have complicated it for the Fed," said LaVorgna. He and others noted that the dollar's slide would be a positive to the Fed, which does not want to slow the economy's growth or exports by having the dollar climb too quickly.

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Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management, said the move in stocks Thursday was in part a reaction to the swift move in yields and currencies. Traders also said the shootings by a husband and wife Wednesday in San Bernardino, California, also unnerved markets. The motives of the shooters were still unclear though there were reports the couple may have been influenced by terrorists.

"I think a little part of it is just the unwinding of the kind of carry trade that was going on with the euro probably taking a little froth out of the market there. It's related to expectations the ECB didn't do a little more," said Burkly. The ECB disappointed when it did not increase the amount of asset purchases, while it did expand the type.

He said the stock market should take the Fed rate hike in stride. "I think people are comfortable with that, unless the unemployment rate is a disappointment," said Burkly.

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