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Solid US job growth dampens hopes for monetary easing

The US labour market remains robust and could force the Federal Reserve (Fed) to keep interest rates on hold for longer than capital markets expect. On the one hand, more jobs were created at the end of last year and on the other, hourly earnings rose more than expected. However, an unexpectedly sharp deterioration in sentiment in the US services sector then rekindled economic concerns. In the equity markets, the euphoria over possible interest rate cuts seems to have faded for the time being. The start of the US corporate reporting season at the end of the week should now provide fresh impetus. 

Alessandro Fezzi, LGT
Temps de lecture
5 minutes

A strong US employment report on Friday dampened financial market hopes of an imminent change in Fed policy. The US economy added 216,000 jobs in December, well above expectations of 175,000. In addition, wage growth remained stronger than expected in December. Average hourly earnings rose by 0.4% monthly (consensus: +0.3%). Year-on-year, wages were up 4.1% (consensus +3.9%). The unemployment rate remained unchanged at 3.7% at the end of last year (consensus 3.8%), not far from the 55-year low of 3.4% reached in early 2023. Inflation risks therefore remain acute and could force the Fed to adopt a more cautious stance regarding an imminent turnaround in interest rates. However, this view is somewhat tempered by a more pronounced deterioration in sentiment in the US services sector. According to the Institute for Supply Management (ISM), the purchasing managers' index fell more than expected from 52.7 to 50.6 points in December.

On Wall Street, stock indexes struggled to find a clear direction at the end of last week. The Dow Jones Industrial closed slightly higher on Friday at 37,466.11 (+0.07%) and the S&P 500 closed 0.18% higher at 4,697.24. The Nasdaq technology index lost around 0.15% on Friday. For the week, the Dow and Nasdaq 100 were down 0.6% and 3.1% respectively. At the same time, the yield on ten-year US Treasuries rose to just over 4%.

Asia-Pacific markets gave back early gains on Monday, with Hong Kong stocks leading the region's losses. The Hang Seng Index fell over 2%, weighed down by healthcare stocks, while mainland China's CSI 300 lost 1.15% after shadow banking conglomerate Zhongzhi Enterprise Group filed for bankruptcy late on Friday. In Australia, the S&P/ASX 200 fell 0.5% and South Korea's Kospi lost 0.3%. Japanese markets were closed for a public holiday and will resume trading on Tuesday.

The EuroStoxx 50 posted a daily loss of around 0.2% last Friday and was down 1.3% in the first trading week of the year, after the European benchmark index had gained around 16% in 2023.

In the eurozone, the cost of living rose at the end of last year for the first time since September. On a year-on-year basis, consumer prices rose by 2.9% in December, compared with 2.4% in November - the lowest level since mid-2010. This was mainly due to higher energy prices over the year. After hitting a record high of 10.7% in the autumn, inflation in the euro area has fallen steadily over the past year. As a result, the inflation rate has once again moved away from the European Central Bank's (ECB's) inflation target of 2%, meaning that an imminent turnaround in interest rates seems a long way off. Nevertheless, core inflation slowed to 3.4% in December from 3.6% in the previous month.

Corporate news in focus: There is no major corporate news today.

Economic data in focus: Germany industrial orders and trade balance November (08:00), Switzerland consumer prices December and full year 2023 (08:30), Eurozone Sentix investor confidence January (10:30), Eurozone retail sales November and consumer confidence December (11:00), US consumer credit November (21:00).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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