CNBC Daily Open: Soft landing in sight?

A sign at a Chick-fil-A fast food restaurant in Columbia, South Carolina, advertises jobs at $15 an hour.

Jeff Greenberg | Universal Image Group | fake images

This report is from today's CNBC Daily Open, our new international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. You like what you see? You can subscribe here.

What you need to know today

Job market better than expected
US Nonfarm Payrolls rose by 199,000 in November, more than the Dow Jones estimate of 190,000 and October's increase of 150,000. The unemployment rate fell to 3.7% compared to economists' expectations, as well as October's reading of 3.9%. Average hourly earnings rose 0.4% for the month, better than estimates of 0.3% growth.

Inflation expectations plummet
Consumers believe US inflation will fall to 3.1% within a year, according to the University of Michigan consumer confidence survey conducted in December. This is notably lower than the 4.5% annual inflation rate that consumers expected in the November survey, and is the lowest level since March 2021. Consumer optimism is also at its highest level since July.

Good week for the markets
US markets ended the week higherdriven by a strong jobs report along with news of a moderation in inflation expectations, indicating a strong possibility of a "Soft landing." However the 10-Year Treasury Yield jumped about 10 basis points on Friday. The European Stoxx 600 index added 0.7%led by travel and leisure stocks, which rose 1.5%.

Prices in free fall
China's consumer price index fell 0.5% in November for the month and year, according to the country's National Statistics Office. It is the steepest year-on-year drop since November 2020 and steeper than the 0.1% drop predicted in a Reuters poll. Producer prices also plunged, falling 3% for the year, compared to a 2.6% drop in October.

[PRO] Last FOMC meeting of 2023
US inflation and interest rate figures will dominate investors' attention this week. The US consumer price index report for November is scheduled to be released on Tuesday. It will be followed on Wednesday by the producer price index report and the Federal Reserve's final meeting of the year.

The bottom line

U.S. job growth accelerated again in November after falling month-over-month in October, while hourly wages rose more than expected. Both figures initially stoked inflation fears. But investors realized that the resilience of the labor market, along with consumer optimism, is paving the way for a soft economic landing.

The increase in job creation must be understood in context. In spite of the The US economy expands at a dizzying rate of 5.2% in the third quarter, the mood has been depressed lately and the murmurs of "recession" have grown louder.

But "nothing about a 3.7% unemployment rate and another 199,000 jobs... doesn't even whisper 'recession,' much less shout it." writes CNBC's Jeff Cox.

"Overall, the labor market is doing its part to bring us to a soft landing," said Daniel Zhao, chief economist at employment review site Glassdoor. "It's boring in every way."

Adding to this positive sentiment is the University of Michigan consumer confidence survey. The November edition showed that consumers expect inflation to fall to 3.1% in one year and to be around 2.8% in five years. These are drastic drops from their expectations from the previous month.

And it's important to note that expectations are not just abstract ideas. They influence real-world prices because consumers and businesses act on their beliefs.

The combination of falling inflation expectations and a rebound in consumer confidence support a soft landing outcome, said Michael Arone, chief investment strategist at State Street Global Advisors. "As long as the soft landing outcome remains intact, the bias towards equities and risk assets will remain positive."

In fact, markets applauded Friday's reports. He S&P 500 rose 0.41%, the Dow Jones Industrial Average rose 0.36% and the Nasdaq Composite advanced 0.45%. All major indices finished the week in the green, with the S&P and Dow closing six consecutive weeks of gains, the longest since 2019.

Investors will focus their attention this week on consumer and producer price reports, and the final Federal Reserve meeting of 2023, all of which will offer more clues as to whether a soft landing scenario is truly on the horizon.

CNBC's Jeff Cox contributed to this report.

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