Market Momentum Shifts as US Payrolls Report Looms
The US payrolls report is set to shake up the market, with expectations of a strong labor market and receding inflation. This could lead to a boost in the Atlanta Fed GDP Now estimate, currently at an above-trend pace of 2.7%. The question on everyone’s mind is: why is the Federal Reserve easing policy at all?
Core Consumer Prices Take Center Stage
Wednesday’s core consumer prices reading will be closely watched, with a result above +0.2% potentially convincing futures to give up on even one cut this year. The Treasury market is already showing signs of concern, with yields potentially testing the 5% barrier. This could have significant implications for corporate earnings, which are about to be put under the microscope as the profit season begins.
Trade Tensions Escalate
China’s massive $105 billion trade surplus with the United States in December has added fuel to the fire, with some calling for sweeping tariffs. Add to this an expanding budget deficit, and it’s no wonder 10-year Treasury yields are on the rise. This shift could make risk-free debt more attractive compared to other investments, including equities, cash, property, and commodities.
Asian Stocks Take a Hit
The impact is already being felt in Asian markets, with Japan’s Nikkei futures down around 1.2%. S&P 500 and Nasdaq futures are also down, while European stock futures have lost 0.1% to 0.3%. The dollar’s bull run is causing stress across Asia, where central banks are being forced to intervene to prop up their currencies.
Currency Concerns
China’s central bank is getting creative, announcing an increase in the cap on what local companies can borrow abroad. This move aims to reduce the need for companies to buy dollars for yuan in the spot market. Meanwhile, sterling has hit a fresh 14-month low, sparking concerns about the Labour government’s financial credibility.
Oil Prices Surge
Oil is up another 1.5% as investors digest the implications of the latest US and UK sanctions on Russian producers. This move could have significant consequences, with 160 tankers of Russia’s shadow fleet now sanctioned. Previous tankers hit by sanctions were severely curtailed in their travel options, with some even being scrapped.
Key Developments to Watch
- U.S. Federal budget balance
- Core consumer prices reading
- Profit season begins with big banks reporting on Wednesday
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