- US job vacancies jumped while unemployment claims unexpectedly fell.
- Market participants expect the Fed to ease by 40-bps in 2025.
- Economists predict an addition of 164,000 jobs, below the previous month’s reading of 227,000.
Interest futures eased as Treasury yields stayed elevated ahead of the crucial US nonfarm payrolls report. Yields soared in the last week due to expectations of a gradual Fed easing cycle. At the same time, uncertainty about Trump’s tariffs has kept investors on edge, with most preferring to buy the safe dollar.
Market participants have been gearing up for the nonfarm payrolls report, which will provide insight into the Fed’s monetary policy outlook. Since the week began, markets have absorbed several upbeat US reports. Job vacancies jumped in November while unemployment claims unexpectedly fell, showing a resilient economy.
Meanwhile, business activity in the services sector improved more than expected, indicating robust demand. Resilience in the US economy is bearish for interest futures because it delays further Fed rate cuts.
US 30-year yield (Source: Bloomberg)
In December, the US Central Bank projected only two rate cuts this year, totaling 50-bps because of the resilient economy. At the same time, inflation has stalled above the 2% target, raising doubts about further declines. Market participants expect the Fed to ease by 40-bps in 2025. High interest rates keep Treasury yields elevated and interest futures down.
The next major report will show the state of the US labor market. Policymakers pay close attention to this sector as it drives a large part of the economy. Therefore, robust job growth will lower rate-cut bets, while softness will increase expectations for lower rates. Economists predict an addition of 164,000 jobs, below the previous month’s reading of 227,000. Meanwhile, they expect the unemployment rate to remain at 4.2%.
Elsewhere, traders are keeping an eye on developments around Trump’s proposed tariffs. During the week, several reports showed that they would focus on critical sectors, easing fears of trade wars. At the same time, the dollar and Treasury yields eased. However, Trump dismissed the reports, allowing yields to recover.
Tariffs on imported goods will significantly boost the US economy, forcing the Fed to keep interest rates at restrictive levels. CNN reported that Trump is considering declaring a national emergency to gain the legal grounds for implementing tariffs. However, all this will play out when he is sworn in on the 20th of this month.
