• Job gain challenge rate cut expectations
• Market snaps 9-week winning streak
• All eyes on inflation and bank earnings

US employment data shows the labour market is robust.

The US economy added 216k jobs ahead of consensus expectations and the highest since September.

The number #1 economy in the world is still grappling with the overheating labour market, despite the fastest rate hike in the last four decades, as the unemployment rate currently stands at just 3.7%, while expectations were for 3.8%.

Job gains (holding up) better than expected imply that the Fed might not rush to cut rates.

Acceleration in jobs data bodes well for economic growth. However, wage gain above consensus is a negative sign for inflation.

Over half of the job growth was seen in education, health services, and the leisure & hospitality sectors. The unemployment rate held steady at 3.7%, slightly better than the anticipated 3.8%.

This steadiness might be attributed to a drop in labour force participation, which hit its lowest point since February 2023. Wages grew by 4.1%, marginally above the expected 4.0%, indicating a tight labour market.

Markets overshoot from time to time.

However, it also challenges the market’s anticipation of significant rate reductions by the Federal Reserve. After the latest data release, the likelihood of a Fed rate cut in March dropped to 60%, a decrease from the 90% chance estimated two weeks earlier.

Furthermore, the jobs market has likely peaked and will continue to soften as the elevated rates filter through the economy.

Markets end their 9-week winning streak

The year 2023 has ended, along with the consecutive winning run of the stock market. Following a continuous nine-week uptrend, the S&P 500 experienced a slight decline last week. This pullback can largely be attributed to initial repositioning and some profit-taking in the new year, coupled with a natural pause following an impressive 16% surge in the last two months of the previous year.

Looking ahead to 2024

Two key factors will shape the market’s trajectory: the Federal Reserve’s decisions on interest rates and the economy’s overall direction.

Usually, the market front runs the first-rate cuts, as all the gains came six months before the actual cut by the Fed. However, the first six months, post the first-rate cut are also positive historically, generating 3.5% on average.

Major weekly events – Inflation, Earnings season kick-off

All eyes will be on the US inflation data and the start of the earnings season, with several major banks reporting fourth-quarter earnings on Friday.

Analysts anticipate a slight increase in the main inflation index to 3.2%, up from 3.1%. Meanwhile, the core CPI, which excludes volatile food and energy components, is projected to show further improvement, with expectations of a decrease to 3.8% from the previous 4%.