Stocks pause and bonds rally ahead of us jobs report

US equity benchmarks took a breather from record highs on Wednesday, with risk-off sentiment extending into the Asia-Pacific session. Japan’s Nikkei 225 finished lower by 1.6%, with South Korea’s KOSPI ending unchanged – albeit notably off all-time highs.

Both the S&P 500 and the Dow Jones Industrial Average retreated from all-time records, down 0.3% and 0.9%, respectively. Meanwhile, despite ending the session well off its best levels, the Nasdaq Composite eked out a modest 0.1% gain, establishing what many will recognise as a bearish shooting star pattern.

In the fixed-income space, global bonds attracted safe-haven bids, sending US Treasury yields lower across the curve. This followed softer-than-expected US jobs data – more on this below – and comes ahead of tomorrow’s widely anticipated US employment situation report for December and increased geopolitical risk.

Oil continues to explore deeper water

Oil prices took a hit in recent trading, recording a second consecutive session in the red. As I noted in my previous post, the dip in WTI Oil and Brent benchmarks followed Trump's announcement that Venezuela would provide about 50 million barrels of Crude to the US, currently valued at approximately US$3 billion. Frankly, most of the market’s reaction to developments in Venezuela has been confined to commodities. It may be of interest to readers that the research team recently published their Chart of the Day on social media, highlighting that WTI has completed a double-top pattern.

Undoubtedly, Trump has been busy during the first full trading week of the year. In addition to issues related to Venezuela and Greenland acquisition developments, he threatened to halt capital returns for defence contractors and suggested banning institutional investors from buying single-family homes.

All eyes on tomorrow’s US jobs data

As expected, yesterday’s December flash eurozone CPI inflation data showed that price pressures cooled to 2.0% on the headline YY measure, down from 2.1% in November, with energy prices (down 1.9%) a key contributor to the slowdown. This was in line with market estimates and is now at the ECB’s 2.0% inflation target.

With core inflation also modestly lower, money markets are not expecting much from the ECB’s rate announcement next month, as the central bank has the benefit of essentially waiting and seeing how the data unfolds before making its next move. Interestingly, investors are forecasting that rates will remain anchored for the entire year.

Stateside, US jobs data made the headlines yesterday ahead of tomorrow’s US employment report. Both ADP (December) and JOLTS (November) came in below expectations, reinforcing the view that the Fed will ease policy by more than the one rate cut projected in its latest SEP. Markets continue to price in -60 bps of easing until the year-end – suggesting a little more than two rate cuts are on the table.

The ADP report showed that the US economy added 41,000 positions. Albeit an improvement from November’s 32,000 contraction, the data fell short of the median estimate of 47,000. The JOLTS job openings report also landed and reported a lower-than-expected number of 7.146 million, easing from October’s downwardly revised reading of 7.449 million. While this suggests that the labour market is cooling, it is not falling off a cliff.  

We also received the December US ISM Services PMI report yesterday, which showed the headline number rising to 54.4 from 52.6 in November. This represents its highest level since October 2024 and appears to be underpinned by a sizeable jump in new orders (57.9 versus 52.9).

While impressive and signalling expansion in the US services sector, and despite a jump in the employment sub-index being seen (52.0 versus 48.9), the fact that most of the survey respondents reported conditions as mainly flat, along with lacklustre hiring activity, I cannot help but wonder if services is growing at a slower pace than the headline number suggests.

The USD, however, concluded Wednesday on the front foot, reclaiming key daily resistance on the USD index around 98.58 and closing within striking distance of the 200- and 50-day SMAs, currently trading around the 99.00 handle.

It is worth recalling that ahead of tomorrow’s US jobs report the Fed lowered the target rate three consecutive times at the end of last year to 3.50%-3.75%. As we all know, the Fed remains in a tricky spot: balancing elevated price pressures and a softening jobs market. This places a firm spotlight on the upcoming jobs report, with the current median estimate indicating that the US economy added 60,000 payrolls, down from November’s 64,000. The estimate range is broad at this point, spanning a high of 155,000 and a low of 19,000, suggesting that economists are uncertain heading into this print. In terms of the current forecast distribution, anything above 120,000 and below 25,000 would be enough to considerably jolt the markets. I will have a more detailed preview out tomorrow morning for this release.

For the day ahead, the economic data docket is relatively thin, with only the US weekly jobless report on deck for the week ending 3 January at 1:30 pm GMT. The median estimate suggests claims rose by 210,000 from 199,000 the week prior, with the estimate range between a high of 230,000 and a low of 200,000.