US jobs growth slows in January but unemployment ticks lower

The US economy added 143,000 jobs in January according to the latest nonfarm payrolls report, the slowest pace of jobs growth in the last three months. Estimates for both November and December 2024 were revised higher by a total of 100,000 jobs, however. Elsewhere in the labour survey the headline unemployment rate ticked lower to 4.0% from 4.1% a month earlier and the lowest level since May last year. Average hourly earnings rose by 0.5% m/m, the fastest pace since August last year. While the jobs number missed market expectations the rest of the labour market data was positive and affirms the view that the US economy remains in good condition, even if some activity indicators have slowed in the start of 2025. Markets have faded their expectation for rate cuts from the Federal Reserve to about 1.4 cuts following the release of the January jobs data.

Consumer sentiment in the US weakened to a seven month low in February according to a preliminary report from the University of Michigan. The sentiment index eased to 67.8 from 71.1 in January. Year-ahead inflation expectations jumped to 4.3% from 3.3% a month earlier, likely as respondents worried about the effect of tariffs on the cost of goods in the US. Longer-run inflation expectations also rose to 3.3%, up from 3.2%.

US President Donald Trump said that he plans to impose reciprocal tariffs this week. There was no clarity on the rate or if the reciprocal tariffs would replace plans for a universal tariff on all goods imports into the US. President Trump has also announced that the US would impose tariffs of 25% on imported aluminium and steel.

CPI inflation in China picked up in January to 0.5% y/y from a rise of just 0.1% a month earlier. The rise may have reflected consumer activity ahead of the Lunar New Year holiday at the start of February. Producer price inflation remains in deflation, however, with prices lower by 2.3%.

Today’s Economic Data and Events

• 11:00 TU industrial production y/y Dec
• EG CPI y/y Jan

Fixed Income

• US Treasuries quickly faded an initial spike higher in response to the January nonfarm payrolls report and ended the day lower as the unemployment and wage levels led to higher rate expectations for 2025. Yields on the 2yr UST ended the day higher by about 8bps at 4.2892% while the 10yr yield rose about 6bps to 4.4947%.
• Regional markets were broadly weaker at the end of the week with GCC bonds tracking a move lower in the wider emerging market space. UAE, Saudi and Qatar USD bond indices edged lower on Friday while Oman and Bahrain were slightly better.
• S&P affirmed their sovereign rating on Iraq at ‘B-‘ with a stable outlook.

FX

• The US dollar pushed higher against peers on Friday, extending some gains from earlier in the week. EURUSD closed the day down by 0.5% at 1.0328 while GBPUSD closed lower for a second day running at 1.2402, down 0.3%, following downbeat messaging from the Bank of England. USDJPY closed flat.
• Commodity currencies had a mixed session with positive jobs market data in Canada helping to keep the Loonie relatively bid for a fifth day in a row. USDCAD closed lower by 0.1% at 1.4293. AUDUSD fell 0.1% at 0.6274 while NZDUSD dropped 0.3% at 0.566.

Equities

• US equity markets fell on Friday in response to expectations that higher US rates will persist. The Dow Jones was off by almost 1%, with a similar sized decline in the S&P 500. The NASDAQ dropped by almost 1.4%. European markets were also softer with a fall of 0.6% in the Euro Stoxx 50 and a 0.3% decline in the FTSE 100.
• Local equity markets had a mixed close on Friday with the DFM lower by 0.1% and the ADX higher by 0.3%. Turkish markets had a strong close on Friday with all major indices up by more than 1%

Commodities

• Oil prices had a positive close on the week with both Brent and WTI front month futures up about 0.5% at USD 74.66/b and USD 71/b respectively. However, on the week they were sold for the third week in a row as anxiety over tariffs weighs on the demand outlook. Apart from gasoline futures products also closed weaker week/week.
• Gold prices extended their hold onto record levels at the end of last week, closing up 0.2% on Friday USD 2,861.07/troy oz. Industrial metals were generally positive with copper, aluminium and iron ore all closing Friday stronger and ending the week higher.