US bonds (=Treasuries) continued their slide and are headed for their biggest weekly decline since October, fueled by speculation that a resilient labor market could delay Federal Reserve rate cuts. Stocks remain under pressure as yields rise and the dollar strengthened for a sixth day.
The markets are awaiting the US labor market report (NFP), which is expected to show that employers added 170K – 175K jobs last month, which would be a decline from the 199K in November. Although I expect hiring to have been very mixed across sectors, strong market performance, easing financial conditions and an overall optimistic US consumer led to higher than expected hiring in December. It is likely that today's NFP data will continue to paint a picture of a strong US economy and a resilient US labor market.
Swap markets have already lowered hopes for a rate cut in March to 65%, down from 90% two weeks ago. As there is little evidence that the US economy has been severely impacted by high interest rates, the pressure on the Fed to cut rates remains low.
As a result, we are seeing sharply rising yields – which still have plenty of room to rise. Interest rate sensitive assets such as growth stocks or the technology-heavy Nasdaq 100 continue to fall. The Nasdaq 100 has already fallen by more than 3.3 % this week.
Following the important inflation data in Europe, traders have also reduced their bets on interest rate cuts by the European Central Bank and the Bank of England. The latest data shows that disinflation has slowed in all major Eurozone countries – more than that, inflation has picked up again, which is not unusual for December.
I expect hopes for rate cuts to fall further, which means a continuation of what we have seen most of the week (headwinds for interest rate sensitive assets, including gold, as well as a stronger USD again).
Oil prices remain robust only due to simmering tensions in the Middle East and Libya. Overall, we see lower oil/fuel demand in the US and a strong build-up in inventories, indicating weak (global) demand.
👁 ROB'S MARKET OVERVIEW:
January 05, 2024
⚠️ We expect the NFP report to show a resilient US labor market. This would result in further rising US Treasury yields.
🌐/🇺🇸 Global/US Markets ↘️
Cyclical Stocks ↘️
Tech/Growth Stocks ↘️
Financial Stocks ➡️/↘️
Defensive Stocks ↕️/↘️ (mixed; health continues to outperform)
Energy Stocks ↕️/↘️ (oil only supported by geopolitical tensions – overall signs of weakening energy prices)
Materials Stocks ↘️
USD ↗️ (USD sell-off short-lived as US Treasury yields likely to rise further)
EUR ↗️/➡️ (EUR supported by higher Eurozone inflation)
GBP ➡️/↘️ (early strong gains with profit taking especially as USD rises)
CHF, JPY, AUD ↘️
⚡️Cryptos ↕️/↘️ (resistance in range 44K – 45K; headwinds from higher yields / stronger USD)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)