A look at the day ahead in U.S. and global markets from Mike Dolan
Another forecast miss from a U.S. megacap combines with caution ahead of January’s employment report to keep a lid on stocks into Friday’s open – with buoyant long-dated Treasuries squashing the yield curve to its flattest for the year.
Much like Microsoft and Alphabet over the past couple of weeks, Amazon disappointed Wall Street late Thursday as concern about cloud computing doused revenue and profit forecasts and sent its stock down 4% overnight.
The latest underwhelming outlook from the “Magnificent 7” top U.S. tech firms reins in an otherwise upbeat S&P500, with questions about heavy spends on artificial intelligence piqued again by the development of China’s cheap DeepSeek model.
The DeepSeek buzz, by contrast, continues to fire up Chinese stocks. They added another 1%-plus earlier on Friday despite ongoing concerns about a mounting Sino-U.S. trade war and Monday’s deadline for Beijing’s retaliatory tariffs.
But the day’s macro events will likely take precedence, with the release of the January U.S. employment report and long-term revisions of past job creation.
Job growth likely slowed to 170,000 in January from just over quarter of million the prior month, partly restrained by wild fires in California and cold weather across much of the country.
Those distortions add a further complication to the readout, which will include annual benchmark revisions, new population weights and updates to the seasonal adjustments.
The week’s sweep of other labor market reports, however, do point to some cooling of conditions – with job openings falling, layoffs rising and weekly jobless claims ticking higher.
With the Federal Reserve already trying to parse the impact of President Donald Trump’s new economic policies, payroll distortions just cloud the picture even further.
And as Fed officials insist they can wait and see for a bit, Fed futures remain trained on two more interest rate cuts this year – resuming about midyear.
The Treasury market is more encouraged though – sustaining the early week’s sharp drop in 10-year yields into today’s jobs report and seeing the 2-to-10 year yield curve compress to the flattest it’s been in six weeks.
Helping the long end this week has been reassuring signals from the Treasury’s quarterly refunding report that a “terming out” of debt auctions to longer maturities is not yet in the works, as many had feared.
Treasury Secretary Scott Bessent has also insisted the new government’s focus would be on getting long-term rates down rather than pressuring the Fed to ease prematurely.
Reuters analysis shows Trump has placed holds on tens of billions of dollars in congressionally-approved spending for projects across the U.S. that range from Iowa soybean farmers adopting greener practices to a Virginia railway expansion.
Bessent also doubled down on his view the administration wants to retain a “strong dollar” policy. But he colored that with a sideswipe. “What we don’t want is other countries to weaken their currencies, to manipulate their trade.”
But with the Fed on hold, central banks around the world continued easing interest rates apace this week – partly on concerns a trade tariff war will weaken their economies.
With a sharp cut in its UK growth forecast, the Bank of England cut its policy rate by a quarter point on Thursday – with two of its policymakers voting for a bigger half point reduction. Sterling weakened initially, but has steadied since.
Mexico’s central bank also cut its interest rate by 50 basis points on Thursday – saying it could cut by a similar magnitude in the future as inflation cools and after the economy contracted slightly late last year.
The European Central Bank, meantime, is expected to release its updated estimate of what it sees as a “neutral” interest rate later on Friday.
That’s important as it informs the ECB debate about whether it needs to cut rates below what considers neutral to revive the flagging euro zone economy. It’s currently seen around 2% – 75bps below the standing policy rate.
In thrall to the payrolls release, the dollar index was steady on Friday. Dollar/yen briefly notched a new low for the year, however, as Bank of Japan tightening speculation simmers.
In Europe, stocks stalled near record highs as the heavy earnings season there unfolded.
Banks there have a been a standout winner this week and again on Friday. Danske Bank, Denmark’s biggest lender, was up 7.1% after it posted record annual profits and launch a new share buyback programme.
Key developments that should provide more direction to U.S. markets later on Friday:
* U.S. January employment report, University of Michigan February consumer survey, December consumer credit; Canada Jan employment report; Mexico Jan inflation
* European Central Bank updates its estimate of “R*” neutral interest rate
* Federal Reserve Board Governors Michelle Bowman and Adriana Kugler speak; Bank of England Chief Economist Huw Pill speaks
* U.S. corporate earnings: Cboe Global Markets, Fortive, Kimco Realty
* Japan Prime Minister Shigeru Ishiba visits United States
(By Mike Dolan, editing by XXXX; [email protected])
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