US labour market data comes in soft

Softer labour market data from the US yesterday strengthens the case for further easing from the Fed this year, with both the ADP employment and the JOLTS job openings reports coming in somewhat weaker than expected. Firstly, the ADP print showed a gain of 41,000 jobs in December, falling short of the predicted 50,000 – though this was an improvement on the 29,000 decline in October, revised from the initial -32,000 reading. Education and health services led the gains while there were declines in professional services and manufacturing. Meanwhile, the number of open positions in the US fell to 7.15mn in November, dropping from 7.45mn the previous month (downwardly revised from 7.67mn). This was markedly weaker than the predicted 7.65mn, and was the lowest reading since September 2024. There was a modest rise in the quits rate to 2.0%, up from 1.9% previously, but the general trend has been for a moderate softening in the labour market, characterised by low-fire and low-hire.

The US ISM services survey surprised to the upside in December as it rose to 54.4, up from 52.6 previously and significantly stronger than the predicted 52.2. This was the strongest reading for the index since October 2024. Prices paid at a slower pace of 64.3, down from 65.4 previously while employment turned positive again at 52.0 following six months of contractionary sub-50.0 readings.

Eurozone CPI inflation stood at 2.0% y/y in December, in line with expectations and down from 2.1% previously. Prices were 0.2% higher, compared with a 0.3% m/m fall in November. Annual core inflation slowed from 2.4% to 2.3%, with the slowdown seen in the headline measure largely owing to a fall in energy prices. Services inflation slowed from 3.5% to 3.4% but remains elevated which will likely forestall any further easing from the ECB from here.

The Indian government has projected real GDP growth of 7.4% in financial 2026, ending in March, which would mark an acceleration on the 6.5% recorded the previous year. This is broadly in line with consensus projections for 7.5% growth this year.

Today’s Economic Data and Events

17:30 US initial jobless claims, week to January 3. Forecast: 212,000

Fixed Income

• The weak employment data provided an initial boost to USTs yesterday, but some of these gains were pared later in the session when the ISM services index outperformed. The yield on the 10yr closed down 3bps on the day to end at 4.1475% while the 2yr pared gains earlier in the session to close up marginally at 3.4695%, up by less than 1bp.
• First Abu Dhabi Bank issued a five-year fixed USD 750mn at t+60, coming in below the IPT of around +95.

FX

• The US dollar index closed up 0.1% yesterday, gaining against its basket of peer currencies for the second day in a row. The greenback was boosted by a positive ISM services reading which offset the weaker employment data to a degree – all eyes now are on the nonfarm payrolls report due out on Friday.
• EUR closed down 0.1% to 1.1657, while GBP dropped 0.3% to 1.3458.
• Commodity currencies were under pressure as oil prices declined, with CAD weakening by 0.3% to 1.3861.

Equities

• The new year rally in global equities faltered yesterday, with US housing and defence stocks under pressure following pronouncements from President Donald Trump. The S&P 500 fell 0.3% and the Dow Jones ended the day 0.9% lower, though the NASDAQ secured a 0.2% gain.
• In Saudi Arabia, the Tadawul gained 1.6% yesterday, boosted by the announcement that national capital markets would be opened up to foreign investors more liberally from the start of next month. Locally, the DFM added 1.1% while the ADX closed 0.5% higher.

Commodities

• Oil prices fell again yesterday as markets continued to digest the implications of US actions in Venezuela. Brent futures closed down 1.2% to 60.0/b, while WTI dropped 2.0% to 56.0/b.
• US energy secretary Chris Wright has said that the US will control Venezuelan oil indefinitely, holding the proceeds in US accounts.