Quiver Quantitative - The financial markets experienced a dynamic shift following robust jobs data, leading to a reconsideration of the Federal Reserve's rate cut timeline. Treasury yields saw an uptick as the 10-year Treasuries' (TLT) yield edged closer to 4%, influenced by strong US hiring in December and lower-than-expected jobless claims. This data sparked a shift in the market's expectations, with swaps traders scaling back their bets on the Federal Reserve's easing of interest rates. BMO (BMO) Capital Markets strategist Ian Lyngen highlighted that the data did not indicate an immediate need for policymakers to start reducing rates.
In the stock market, the Nasdaq 100 (QQQ) experienced a slight recovery, increasing by 0.3%, pulling back from what could have been its most extended losing streak in over a year. However, Apple (NASDAQ:AAPL) faced a downturn after receiving its second downgrade of the week from Piper Sandler due to concerns about iPhone inventory levels. The S&P 500 (SPY), meanwhile, rose by 0.4%, recovering from a three-day selloff. These movements in the stock market indicate a cautious but responsive approach by investors to the unfolding economic data.
Market Overview: -Robust US hiring data quells Fed easing expectations, sending Treasury yields higher and dampening equities. -Apple faces another downgrade, adding to tech woes on the Nasdaq 100. -Crude prices retreat after inventory build-up, despite ongoing supply disruptions.
Key Points: -Strong December jobs report and low jobless claims cast doubt on a swift Fed pivot to rate cuts. -Ten-year Treasury yields climb towards 4%, reflecting reduced bets on early monetary policy loosening. -Apple dips after Piper Sandler's downgrade raises concerns about iPhone inventory levels. -Nasdaq claws back some losses but remains capped by tech pessimism. -March rate cut bets diminish, with focus shifting to Friday's US payrolls report for further clues. -WTI oil tumbles amid rising Cushing stockpiles, despite Libyan disruptions and Iran tensions. -Yen weakens on potential delay in Bank of Japan's exit from negative interest rates.
Looking Ahead: -Friday's US jobs report and European inflation data will be key for gauging central bank policies. -Fed's restrictive rate stance likely to persist for "some time," tempering cut expectations. -Continued strength in the labor market could further dampen hopes for an early shift to lower rates. -Apple's iPhone inventory concerns cast a shadow over tech sentiment, requiring close monitoring. -Oil price volatility likely to continue amid conflicting supply risks and economic uncertainties.
In anticipation of the upcoming US jobs report and European inflation data, traders are recalibrating their expectations regarding rate cuts by central banks. The likelihood of a rate cut by the Federal Reserve in March, previously considered a strong possibility, has now diminished to around 65%, reflecting the labor market's robustness and the Fed's December meeting minutes suggesting prolonged restrictive rates. Chris Larkin from E*Trade at Morgan Stanley (MS) emphasized the potential impact of continuing economic strength on the Fed's rate cut decisions.
Commodity and currency markets also reacted to the changing economic landscape. West Texas Intermediate oil prices fell after a surge in stockpiles at Cushing, amidst fluctuating global supply dynamics. In the currency market, the Japanese yen weakened due to speculation about the Bank of Japan's interest rate policy following a significant earthquake. Key events, including Eurozone CPI and US nonfarm payrolls, are eagerly awaited for further insights into global economic trends.
This article was originally published on Quiver Quantitative