Stocks and bonds tumbled on Friday while the Dollar surged in response to the strong US jobs report which saw traders pare Fed rate cut bets. The NFP rose above all analyst expectations while the unemployment rate surprisingly slipped. Money markets started to unwind Fed rate cut bets with only 28bps of easing priced throughout the year, implying just a 12% probability of a second 25bps rate cut. The data also saw a lot of banks revise their Fed calls, notably Bank of America no longer expecting any rate cuts this year. Aside from NFP, the University of Michigan Sentiment Data was also of note given a surge in both the 1 Year and 5-10 Year consumer inflation expectations, which capped the post NFP reversal in T-Notes with bonds sliding into settlement to settle around the post NFP troughs. In FX, the Dollar and Yen outperformed with the jobs report and paring of Fed rate cut bets supporting the Dollar. The Yen managed to outperform with tailwinds from the prior sessions after recent wage data while reports in Bloomberg on Friday suggested the Bank of Japan is still mulling over the rate decision, but it is considering upgrading core inflation forecast for FY24 and 25 amid recent Yen weakness while no decision has been made on raising rates and they intend to wait until the very last moment before deciding on increasing rates. Note, although the Canadian Dollar was softer versus the U.S. Dollar, it was still a relative outperformer after a strong Canadian jobs report. Elsewhere, Crude prices ground higher as they were supported by geopolitical updates and Chinese jawboning, before paring after the aforementioned strong NFP data, but remaining well in positive territory. Precious metals and silver were bid with the downside seen in the immediacy of the jobs report swiftly pared. This week attention largely lies on US CPI to help further shape rate cut expectations from the Fed. The U.S. Jobs Report was strong. The US economy added 256k jobs in December, well above the 160k consensus and above the prior (revised down) 212k, it was also above the top end of the forecast range of 200k. The unemployment rate slipped to 4.1% from 4.2%, despite expectations for an unchanged print while the participation rate was unchanged at 62.5%. The U6 Underemployment rate slipped, falling to 7.5% from 7.8%. Wages rose by 0.3% M/M, in line with the forecast, cooling from the prior 0.4% while the Y/Y print rose by 3.9%, down from 4.0% in November and beneath the 4.0% consensus. The strong jobs report supports the Fed’s view that downside risks to the labour market have diminished, and supports the case for caution with future rate cuts with inflation still above target. The Fed has alluded to two rate cuts in 2025, but since the data traders have pared rate cut bets with the first fully priced Fed rate cut not seen until September, from June before the data. Meanwhile, only 32 basis points of easing is priced through year-end, versus 39 basis points pre data. This implies a 100% probability of one rate cut between now and September, with a 28% probability of a second rate cut by year-end. The strong jobs report gives the Fed the ability to wait before resuming with rate cuts to ensure inflation is on its way back to target. Nonetheless, there is still plenty of data due between now and the March FOMC to help shape future rate expectations with the January 29th meeting largely seen as a skip. Note, December CPI due this week will be key. In wake of the report, several banks have revised their Fed calls. JPMorgan expects the Fed to deliver the next rate cut in June (prev. forecast March). Bank of America thinks the cutting cycle is over and no longer expects more rate cuts. Citigroup expects the next Fed rate cut in May (prev. January). Goldman Sachs expects the Fed to deliver 50bps of easing this year, 25bps in June and 25bps in December (prev. 75bps of easing in 2025). Wells Fargo said a March rate cut is increasingly unlikely. Morgan Stanley however said a March cut is still more likely than not, due to its more favourable inflation outlook. Prelim University of Michigan sentiment for January dipped to 73.2 from 74.0, and beneath the expected 73.8. Current conditions rose to 77.9 (prev. 75.1), while forward-looking expectations fell to 70.2 (prev. 73.3). On inflation expectations, both the 1 Year ahead and longer-term 5-10 year soared to 3.3% from 2.8% and 3.0%, respectively, with the latter climbing to its highest since 2008. The report adds, “For both the short and long run, inflation expectations rose across multiple demographic groups, with particularly strong increases among lower-income consumers and Independents.” In addition, the report notes that assessments of personal finances improved about 5%, while the economic outlook fell back 7% for the short run and 5% for the long run. January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation. Meanwhile Fed Governor Bowman stressed the Fed should be cautious in considering changes to the policy rate and that she supported the December rate cut as a “final step” in policy recalibration, but she could have supported taking no action in December due to lack of progress on inflation and strength in the economy. Bowman stated that the current stance of policy may not be as restrictive as others may see it, and she sees greater risks to price stability, although a deterioration in labour market conditions is still possible. Bowman noted the coming months should bring clarity on the incoming admin’s policies and inflationary pressures, while adding that pent-up demand after the election could also pose inflationary risks. She said the FOMC should refrain from prejudging the Trump administration’s future policies. She added that inflation is elevated, progress has stalled, and she sees upside risks, while wage growth also remains above a pace consistent with the inflation goal. On regulation, Bowman – who has been touted as the successor to Fed’s Barr as Vice Chair of Supervision – said new leadership at banking agencies are expected to translate into a shift in regulatory priorities and approach. She said bank regulators should adopt a more pragmatic approach to policy making, and they should return to tailoring rules to bank size, increasing transparency, prioritising safety and soundness. Elsewhere, Oil surged on Friday ending the session with a 3.5% gain while despite a much stronger Dollar, Gold ended Friday’s session with a gain of over 1%.
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For anyone following my Platinum Service it lost 80 points on Friday and is now ahead by 256 points for January after closing December with a gain of 1997 points after closing November with a gain of 3049 points having finished October with a gain of 2179 points. September saw a gain of 4402 points following a 301-point loss for August after closing July with a gain of 1918 points while June closed with a gain of 2074 points, having made 1843 points in May. The Platinum Service made 4010 points in April after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
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