(Bloomberg) — Stocks and bond markets retreated on Friday as traders took a cautious stance ahead of US jobs data that will offer fresh insight on the state of the economy and the outlook for interest rates.
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S&P 500 and Nasdaq 100 futures fell 0.2%. A Chinese benchmark pushed toward a bear market. Europe’s Stoxx 600 was little changed. Power utility Edison International and major US insurers slid in premarket trading as estimates of wildfire-related damages in Los Angeles soared.
US Treasuries were mostly flat. The week’s broad pullback in European government bonds persisted, with the yield on 10-year gilts remaining stuck near the highest level since 2008.
Financial markets are off to an unsettling start this year, driven by concerns that the benefits of a strong US economy will be overshadowed by persistent inflation and the likelihood of slower rate cuts. Additionally, uncertainty surrounding the scope and impact of the incoming US administration’s trade policies is exacerbating fears.
Friday’s US nonfarm payrolls data is expected to show a slowdown in hiring in an otherwise healthy labor market. Median estimates for the figures forecast that 165,000 jobs were added to the economy in December. The unemployment rate is forecast to hold steady at 4.2% and average hourly earnings growth is seen cooling a touch from a month earlier.
“Given how quickly the Fed hawks have gained ground in recent weeks — and how much more investors are excited by dovish signals — the market’s reaction to soft data could outweigh its response to strong figures,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Several Fed officials confirmed Thursday that the central bank will likely hold rates at current levels for an extended period and only cut when inflation meaningfully cools.
“The Fed is worried about the incoming administration,” Skyler Weinand, chief investment officer for Regan Capital, said on Bloomberg Television. The combination of the growing US fiscal deficit and a strong consumer could result in “higher interest rates for the next five to ten years,” he said.
A hectic week for UK assets is coming to an end with the pound close to its weakest since late 2023, falling 0.1% to $1.2291. UK 10- and 30-year bond yields jumped more than 20 basis points over the past five sessions, the most in a year.
