Pictet Group
Weekly house view | Hot jobs
The week in review
The good news on the jobs front proved bad news for stocks last week. The S&P 500[i] declined 1.9% (in USD) as the December nonfarm payrolls report dampened hopes for further Fed rate cuts. US Treasury yields, which had already been rising beforehand because of concerns about the inflationary policies the Trump administration might introduce, rose further after the release of the nonfarm payroll report and the University of Michigan’s consumer sentiment index, which showed a large increase in one-year inflation expectations. Small-cap stocks were particularly hit by the rise in bond yields, with the Russell 2000[ii] down 3.5% (in USD) on the week. The rise in US Treasury yields pushed bond yield higher elsewhere, with UK gilts coming under particular pressure as the UK’s fiscal credibility came under scrutiny. Sterling also sold off. Evidence that the US economy remains robust and higher Treasury yields meant the US dollar continued to rise against most currencies, with the renminbi’s continued weakness prompting moves by the Chinese authorities to prop up the currency.
Quote of the week
“We need Greenland for national security purposes,” President-elect Trump said on Tuesday, also eyeing up the Panama Canal on the same grounds.
Key data
US nonfarm payrolls rose 256,000 in December, up from 212,000 in November and well ahead of expectations. The unemployment rate fell back to 4.12% from 4.2%, while the annual increase in hourly earnings was 3.9%. The ISM purchasing managers’ index for services rose to 54.1 in December from 52.1 the month before. According to first estimates, headline consumer inflation in the euro area rose to an annual rate of 2.4% in December from 2.2% in November. Core inflation (excluding food and energy) was unchanged at 2.7%. In Switzerland, the SNB said it expected profit of around CHF80 bn for 2024. In China, the consumer price index declined to a year-on-year (y-o-y) rate of 0.1% in December from 0.2% in November.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Russell 2000 (net 12-month return in USD): 2020, 20.0%; 2021, 14.8%; 2022, -20.4%; 2023, 16.9%; 2024, 11.5%.