Nonfarm payrolls surprise on the upside

December saw a significantly higher-than-expected rise in US nonfarm payrolls, gaining 256k, from a downwardly revised 212k in November. Consensus expectations had been for payrolls to rise by 165k. The gains in December payrolls were largely concentrated in the service sector, with payrolls in goods-producing sectors falling. A large rise in the household survey on the month, resulted in the unemployment rate falling back to 4.1% from 4.2% in November. The print has further solidified investor expectations for the Fed to hold rates steady for an extended period, with markets now expecting the next cut to occur in September, pushed back from June.

The University of Michigan sentiment survey dipped marginally in the provisional January print, falling to a value of 73 from 74 in December. There was a rise in the current conditions index, which jumped to 77.9 from 75.1. In contrast the expectations component, which carries the highest weight in the headline, fell to 70.2 in January from 73.3 the month prior. There was also a sharp uptick in one-year-ahead inflation expectations, which rose to 3.3% from 2.8% in the December survey.

Industrial Production in India rose 5.2% y/y in November, up from 3.7% in October. The rise marked the fastest pace of growth since May 2024, and was materially higher than the 4.1% y/y gain that had been expected. The biggest gain was seen in the manufacturing sub-component, which rose 5.8% y/y.

Today’s Economic Data and Events

14:30 India CPI (Nov). Forecast: 5.3% y/y

Fixed Income

US treasury yields gained sharply on Friday, with the release of the December nonfarm payrolls data pointing to continued resilience in the US labour market, increasing market expectations for an extended pause to cuts in the Fed funds rate. The 2yr yield gained 12bps on the day and 10bps over the week to reach 4.3792%. The 10yr yield rose 7bps on Friday, and 16bps week-on-week, to close at 4.7592%.

European bond yields saw broad-based rises on Friday. The 10yr Bund yield gained 3bps to 2.593%. The 10yr UK Gilt yield gained a further 3bps on Friday, to reach 4.8362%, leaving the yield over 24bps higher on a week-on-week basis.

FX

The US dollar gained further on Friday, rising 0.43% on the day against its basket of peer currencies. That leaves the dollar spot 1.3% higher week-on-week.

EURUSD fell 0.5% to 1.0244, and GBPUSD fell 0.8% to 1.2207. In contrast USDJPY fell 0.26% to 157.73, largely shrugging off US payrolls data.

Commodity currencies were weaker against the dollar on Friday. AUDUSD fell 0.8% to 0.6147, NZDUSD declined 0.76% to 0.5557, and USDCAD rose 0.2% to 1.4423.

Equities

Major US equity markets fell on Friday following the strong nonfarm payrolls print, with a particularly large sell-off in big tech stocks. Both the Dow Jones and the NASDAQ fell 1.63% on Friday, ending the week 1.86% and 2.34% lower on a week-on-week basis, respectively. The S&P 500 declined 1.54% on the day, ending the week 1.94% lower.

The stronger-than-expected US jobs data also spurred declines in major European equity markets. The Eurostoxx 50 and CAC 40 both fell 0.8%, the FTSE 100 dropped 0.86%, and the DAX declined by 0.5% on Friday.

Locally, the ADX rose 0.5% on Friday, while the DFM was broadly flat.

Commodities

Brent futures closed 3.69% higher on Friday to reach USD 79.76/b, while WTI added 3.58% to USD 76.57/b. The price rises mean that both benchmarks have seen a third consecutive weekly gain. The US announced additional sanctions on Russian oil producers and 183 vessels used for shipping.