Goldman Sachs expects a soft but not scary US labor report (covering both October and November), consistent with a gradually cooling labor market, but not a recession signal. Markets are quite sensitive to downside surprises, especially in rates and equities, given how much cyclical assets have rallied and how little recession risk is priced.
GS Economics: NFP & Labor Market Views
Headline numbers (GS estimates):
- Nonfarm payrolls (NFP):
- October: +10k (total), +70k (private)
- November: +55k (total), +50k (private)
- Consensus for November: +50k (GS is just slightly above).
- Unemployment rate:
- Expected to rise to 4.5% in November
- From an unrounded 4.44% in September (so the move is mostly rounding).
- Average hourly earnings (AHE):
- October: +0.30% m/m
- November: +0.35% m/m
- October has a neutral calendar effect; November has a positive one (slightly boosting the m/m print).
Special factors & caveats:
- Deferred resignation program:
- Creates uncertainty for headline payrolls.
- Doesn’t affect private payrolls, so private NFP is the cleaner signal of underlying job growth.
- Furloughed federal workers during the survey week may be temporarily counted as unemployed, nudging the unemployment rate higher.
- Net message: Labor market is cooling, not collapsing.
Market pricing context:
- SPX implied move through tomorrow’s close: ~**0.65%**.
- Front-end rates are only pricing about ~20 bps of cuts over the first three meetings in 2026 – so there’s asymmetry if the report is meaningfully weaker than expected.
GS Macro View (Vickie Chang)
Setup:
- This report is unusual: it’s delayed and covers two months (October and November).
- GS baseline: +55k NFP and 4.5% unemployment in November.
- Powell at the last FOMC:
- Sounded more concerned about downside labor risks.
- Did not strongly lean into a January pause, but emphasized data volatility and the need for a “skeptical eye.”
Risk skew:
- Markets are not really pricing recession fears, so:
- Rates asymmetry is to the downside: a negative labor surprise could hit risk and benefit front‑end rate longs.
- GS baseline is not a “bad” outcome:
- A report in line with their forecast would likely:
- Relieve near-term event risk, and
- Fit into a benign macro backdrop (no imminent recession).
If there’s a bigger downside surprise:
- Example trigger: unemployment rate 4.6%+.
- With limited cuts currently priced:
- Front-end longs (e.g., in US rates) look like good insurance.
- Equity hedges (puts, or trades linking lower equities + lower front-end yields) can make sense depending on existing risk.
GS Equity Strategy (Ryan Hammond)
Recent price action:
- Cyclicals vs Defensives:
- Cyclicals have rallied sharply in recent weeks.
- Outperformed Defensives on 14 consecutive days – longest stretch in 15+ years.
- The Cyclicals vs Defensives basket (GSPUCYDE) is up ~11% since Nov 20, now above its mid‑September high.
Interpretation:
- Clients are optimistic on the economy.
- Still, sector rotations imply the market is only pricing:
- A bit above 2% real GDP growth.
- GS cross‑asset tools suggest:
- A slightly more conservative outlook, broadly in line with consensus (not wildly bullish).
NFP implications for equities:
- If the labor market strengthens relative to expectations:
- Scope for broader equities, especially cyclicals, to move higher.
- But:
- Equity market is vulnerable to a material negative surprise in the labor data.
- Modest weakness could be partly offset by incremental Fed easing hopes, but a big downside surprise would likely hurt risk.
GS FX View (Karen Fishman)
Core view:
- Biggest potential headwind to Dollar shorts = labor market data, more than the December FOMC.
- Powell’s dovish tone recently:
- Allowed the Dollar to weaken,
- Helped cyclical assets across markets.
If the data comes in roughly as GS expects (moderate job growth, stable-ish unemployment):
- Markets may refocus on US reacceleration risk.
- That would weigh on:
- JPY, CHF, EUR (i.e., stronger USD vs these).
- But:
- There’s a limit to how high yields can go, because:
- Powell emphasized the volatility and need to discount some data.
- So EM carry should remain well supported.
- Cyclical FX (AUD, NZD, SEK) should be less sensitive to even large surprises.
Positioning notes:
- EM carry has turned higher vol, partly due to:
- AI-related equity wobbles,
- Political noise in Brazil and Hungary.
- Still, GS has high conviction long ZAR:
- Attractive fundamentals,
- Less exposed to China’s trade competitiveness pressure (a key theme for 2026).
- Preferred expression: long ZAR funded out of CAD, to:
- Reduce risk beta and vol.
- This hasn’t worked as expected recently because of hawkish repricing of the BoC, but GS thinks:
- The market is near the limit on how many hikes it can price while the BoC says it’s on hold.
If the labor market data significantly disappoints:
- Most positive for JPY, given:
- Heavy tactical short positioning.
- Magnitude of yen strength depends on:
- How much rates and equities reprice.
- Response could be more muted than usual if those markets don’t move dramatically.
GS Volatility / Options View (Joe Clyne)
Current vol setup:
- Market and implied vol have drifted lower into NFP.
- Dealer long gamma is keeping the market pinned (range‑bound).
- SPX one‑day straddle is pricing ~0.65% move into the print.
GS vol stance:
- They see “good news is good news” for equities:
- Stronger jobs → stocks up, especially cyclicals.
- On vol:
- There’s still room for implied vol to fall on a rally:
- Dealers get longer options on the topside,
- Front‑end vol is not yet at year‑to‑date lows.
- Preference:
- Short vol trades > long gamma trades at current pricing.
- Flows:
- Quiet overall into the print,
- Small uptick in customer hedging (some demand for protection, but not extreme).
Risk reminder (from GS):
- Max loss on options bought = premium paid.
- Max loss on options sold = unlimited.
Core Takeaways
- Macro data: GS expects moderate payrolls (+55k), higher unemployment (4.5%), and modest wage growth, consistent with a cooling but not breaking labor market.
- Rates: Asymmetry skewed toward downside surprise risk; front-end longs are good insurance if unemployment jumps (≥4.6%).
- Equities: Cyclicals have rallied hard; stronger labor = more room up, but equities are vulnerable to a big negative surprise.
- FX: Baseline supports USD vs JPY/CHF/EUR; EM carry (especially long ZAR funded vs CAD) still favored, but with higher volatility.
- Vol: Implied move is modest (~0.65%); GS leans short vol, seeing room for vol to compress if the report is benign and equities rally.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!