US market update: The Federal Reserve will probably cut rates next week

The November payrolls report signalled a return to normality after the disruption caused by the hurricanes and the Boeing strike in the previous report. The US economy remains at full employment, and wages are growing healthily. The dollar initially sold off following the release of the data, perhaps on confirmation of the higher jobless rate print, although it quickly reversed course as markets reacted to the better than expected job creation and earnings numbers.

The Federal Reserve will probably cut rates next week, but it remains to be seen how much further rates can drop given the macroeconomic context and the prospect for further inflationary policies from the Trump administration.

In fact, the monthly core rate of inflation for November will likely print again near a 4% annualised rate in the monthly core rate, which we think is hard to square with a terminal rate much below 4%.