US equity futures are unchanged, with tech lagging and small caps leading as traders hunker down ahead of a payrolls report that is expected to show 175,000 new workers but will also be dramatically revised. As of 8:00am ET, S&P futures are flat with the index on track for a 0.7% weekly advance; Nasdaq futures are down 0.1%, with Mag 7 mostly lower after AMZN’s earnings disappointment last night (AMZN -2.6%; TSLA -1.5%; NVDA -0.9%); the e-commerce and cloud-computing company gave an outlook that was weaker than expected. Meanwhile, there seems to be no stopping Meta as the social networking giant is on track to extend gains for a record 15th consecutive session. Bond yields are largely flat; USD unchanged. Commodities are mostly higher led by oil (+0.8%). Today, the key macro focus will be NFP (a full scenario analysis from JPM and Goldman can be found here): the Street’s estimate is 175k; a step down from last month’s 256k print. For the unemployment rate the Street expects 4.1%.
In premarket trading, Amazon was down 3% and is leading losses for the Mag7 after warning investors that it could face capacity constraints in its cloud computing division despite plans to invest some $100 billion this year, with most of the money going toward data centers, homegrown chips and other equipment to provide artificial intelligence services. Affirm Holdings rose 15% after the financial technology company reported quarterly results that beat expectations and gave an outlook that is seen as strong. Expedia shares jumped almost 10% in premarket trading after the online travel agency reported fourth-quarter results that beat expectations. Here are some other notable premarket movers:
All eyes now turn to the US jobs report which is expected to show 175,000 new roles added last month after advances in excess of 200,000 in the prior two months, which partly reflected recovery from two severe hurricanes. Wall Street will be closely watching a revision to job growth for the 12 months through the previous March. Economists expect the markdown to show a labor market that’s gradually cooling (our full preview is here).
"The stock market, needing a boost after a decent but lukewarm earnings season, could potentially rise if the job market shows signs of cooling,” said Florian Ielpo, head of macro research at Lombard Odier Investment Managers. An uptick in hiring might reignite concerns about inflation, he added.
In other markets news, US Treasury Secretary Scott Bessent said that he favors a strong dollar and has no plans to alter the government’s debt-issuance plans. During the election campaign, President Donald Trump expressed concern about the strength of the dollar, given that it makes US products more expensive overseas.
“The strong-dollar policy is completely intact with President Trump,” Bessent said in an interview with Bloomberg. “We want the dollar to be strong. What we don’t want is other countries to weaken their currencies, to manipulate their trade.”
European equities traded lower on Friday after some key earnings reports disappointed and before investor focus switches to US employment data. Construction and material shares outperform in Europe after a flurry of well-received earnings updates. Consumer and health care stocks provide a drag however with the Stoxx 600 down 0.1%. Here are the biggest movers Friday:
Asian stocks advanced, with gains in Chinese shares offsetting losses in Japan, as traders awaited US jobs data that will help provide clues for the Federal Reserve’s rate path. The MSCI Asia Pacific Index rose 0.1%, erasing an earlier 0.2% loss. Technology shares including TSMC and Tencent were among the biggest boosts. Toyota Motor dragged on the gauge as Japanese stocks fell on a stronger yen. Despite recent volatility in the market amid a brewing US-China trade war, some calm has returned as traders focus on earnings reports and economic data. The Asian stock benchmark is headed for a fourth-straight week of gains, the longest such win streak in 11 months.
In FX, the Bloomberg Dollar Spot Index is also little changed. The yen is the weakest of the G-10 currencies, falling 0.4% against the greenback and pushing USD/JPY above 152.
In rates, treasuries are steady with US 10-year yields trading around 4.435%, little changed on the day, with bunds and gilts outperforming by 1.5bp and 2.5bp in the sector; front-end Treasuries lagging has 2s10s spread flatter by 1.2bp, extending a three-day move that has seen the curve drop from around 30bp Wednesday to current 21bp. Bunds and gilts outperform over early London session, but price action broadly quiet ahead of the January nonfarm payrolls print expected at 8:30am New York time; German and UK 10-year yields down 1 bp each.
In commodities, oil prices advance, with WTI rising 0.8% to $71.20 a barrel. Spot gold climbs $8 to around $2,864/oz. Bitcoin rises 0.5% and above $97,000.
Looking to the day ahead, US economic data calendar includes January jobs report (8:30am), February University of Michigan sentiment, December wholesale inventories (10am) and December consumer credit (3pm). Fed speaker slate includes Bowman (9:25am) and Kugler (12pm).
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APAC stocks traded mixed following the similar performance stateside where price action was choppy amid soft data and as participants looked ahead to the latest key US jobs report. ASX 200 struggled for direction as strength in tech and consumer staples offset the losses in energy and healthcare. Nikkei 225 was pressured by recent currency strength and mild upside in yields but with losses cushioned by stronger-than-expected Household Spending data which showed a surprise M/M growth and the fastest Y/Y pace of increase since August 2022. Hang Seng and Shanghai Comp were on the front foot despite the absence of any major fresh catalysts with participants potentially taking solace from the lack of trade war escalation, while the gains in Hong Kong were led by advances in tech and auto names.
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European bourses (Stoxx 600 +0.1%) are mixed, with trade tentative ahead of the all-important US NFP report. European traders will also be cognizant of the ECB Staff Revision of the Natural Interest Rate. European sectors are mixed, and aside from the top/bottom performers, the breadth of the market is fairly narrow. Construction and Materials tops the pile, lifted by post-earning strength in Vinci; Consumer Products is weighed on by losses in L’Oreal (-4%) after posting weak LFL Sales in Q4 and highlighting poor Chinese demand.
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DB's Jim Reid concludes the overnight wrap
As we reach the end of another exhausting week where the themes at the end of it are a long way from where they were on the Monday, I have a film recommendation for you for the weekend if you’re looking to switch off, especially if you like music! It’s over 10 years old but I finally watched a film called “Searching for Sugarman” last weekend. It was a remarkable documentary that if paraded as fiction you would say was too unrealistic. It is about a musician who was relatively unknown in the US (circa 1970) and soon went back to labouring after releasing two unsuccessful albums.
Unbeknown to him he became bigger than Elvis in South Africa (selling half a million copies) but in an age of apartheid and without the internet, they knew nothing about him and the stories were that he was dead. It took 25 years for him to realise his fame abroad and for them to realise he wasn’t dead. You can then see the movie for what happened next. It inspired me to believe that my former band Vapour Trail might be bigger than the Beatles in say North Korea. I live in hope.
After Monday’s trade-related slump, film scriptwriters would have been thrown out for a plot that had markets hitting or approaching their highs by the end of the week. But that’s what’s happened, and last night the S&P 500 (+0.36%) closed less than 1% away from its all-time high, whilst Europe’s STOXX 600 (+1.17%) hit a new record. In fact, the German DAX (+1.47%) even took its YTD gains above the 10% mark, making it the only major global index to do so this year, which is pretty striking when you consider the sensitivity of German automakers to the tariff threats. Nevertheless, markets have continued to take the trade news in their stride, and investors remain sceptical that President Trump will follow through on his more aggressive threats, which has helped to support a broader recovery in risk assets since the weekend.
Having said that, the positive mood has lost a bit of ground on Amazon’s results after the close. The company delivered a solid earnings beat but this was overshadowed by slower cloud growth and weaker guidance for Q1, with projected operating income in the $14bn to $18bn range (vs $18.2bn average estimate). Amazon’s CEO noted capacity constraints in cloud computing, with plans to invest $100bn in 2025, and its shares fell by about -4% in after-market trading. If confirmed in today’s regular session, it would make it 4 out of 6 of the Magnificent 7 reporting so far that’s seen a negative market reaction. See my CoTD yesterday here that speculates whether the hyperscalers within the Mag-7 are in a "winner's curse" at the moment, where to stay in the game they have to spend mind boggling sums on Capex. Like the telcos in 1999/00 with 3G licences but obviously without the debt. This capex spend encourages share price appreciation when no-one has any doubts about eventual AI monetisation, but begins to become an issue when doubts emerge. You have certainly seen that a bit more this results season.
Of the Mag-7 there is now just Nvidia left to report on February 26th so the group have some space now. And prior to Amazon’s results, tech stocks had a pretty solid day, with the Mag-7 (+0.68%) and NASDAQ (+0.51%) slightly outperforming the S&P 500 (+0.36%). That said, the equity gains were far from uniform with equal-weighted S&P 500 (-0.12%) and the small cap Russell 2000 (-0.39%) both retreating.
Overnight in Asia, we’ve seen a mixed performance for equity markets. In Hong Kong, the Hang Seng (+1.28%) is on track for its highest closing level since October, and both the CSI 300 (+1.59%) and the Shanghai Comp (+1.32%) have also seen solid gains. But elsewhere the performance has been more negative, with the Nikkei (-0.55%) and the KOSPI (-0.41%) both losing ground, whilst US equity futures are also pointing a bit lower, with those on the S&P 500 down -0.09%.
Meanwhile in Japan, there was further strong economic data overnight, with real household spending up +2.7% year-on-year in December (vs. +0.5% expected). That’s the fastest pace since August 2022, which is helping to cement expectations that the BoJ will keep hiking over the months ahead. Indeed, the 2yr Japanese government bond yield (+3.3bps) is up to 0.79%, which is the highest it’s been since 2007. And the 10yr yield is up +2.7bps to 1.29%, the highest since 2011.
Looking forward now, today’s main highlight will be the US jobs report for January, which is coming out at 13:30 London time. In terms of what to expect, our US economists are looking for nonfarm payrolls at +175k, dipping down from the 9-month high of +256k in December. Part of that downtick is because of the Los Angeles wildfires, which occurred during the survey week, but they think the unemployment rate should remain at 4.1%. The other important feature of today’s report is the annual benchmark revisions, meaning that the previous 5 years of payrolls are subject to revisions this month. For more details, see our economists’ preview here and how to sign up for their subsequent webinar.
Ahead of the jobs report, the weekly initial jobless claims were a bit worse than expected, rising to 219k in the week ending February 1 (vs. 213k expected). That also pushed the 4-week moving average up to 216.75k, its highest so far this year. But even so, US Treasury yields ticked up across the curve, with the 2yr yield up +2.6bps to 4.215%, whilst the 10yr yield was up +1.8bps to 4.44%. That came as investors dialled back the likelihood of rate cuts this year, with the amount priced in by December down -2.7bps on the day to 44bps. That’s continued to dial back overnight, following comments from Dallas Fed President Logan that even if inflation moved close to 2% in the months ahead, “it wouldn’t necessarily allow the FOMC to cut rates soon, in my view”.
Other notable comments came in an interview by Treasury Secretary Bessent, who reiterated a preference for lower 10yr yields, which he said would naturally come down under Trump’s policies. He also said he did not “foresee any changes in the issuance (of Treasuries) for the foreseeable future” and noted that the US would continue to have a “strong dollar” policy.
Over in Europe, the main story came from the UK, as the Bank of England delivered another 25bp rate cut, taking their policy rate down to 4.5%. Significantly, the vote was a 7-2 split, with the two dissenters wanting a larger 50bp rate cut, and their latest forecasts halved the growth projection for 2025 to 0.75%, down from 1.5% three months ago. On top of that, they’re now forecasting CPI inflation rising to 3.7% in Q3, so in general the forecasts moved in a stagflationary direction.
With investors anticipating more rate cuts this year in response, sterling was the worst-performing G10 currency on the day, weakening -0.56% against the US Dollar. However, even though front-end gilt yields fell initially, they ended the day higher after Governor Bailey said he wouldn’t “put too much weight on the voting”. So by the close, the 2yr gilt yield was up +2.2bps, and the 10yr gilt yield was up +4.9bps. In addition, the rhetoric from the BoE themselves was still fairly cautious, with the summary saying that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.”
Elsewhere in Europe, the risk-on tone was clear from several angles, as the STOXX 600 (+1.17%) pushed up to a new record. Those moves were also evident in the bond market, where yields on 10yr bunds (+1.2bps) moved a bit higher, and there was a fresh tightening in sovereign bond spreads as well. In fact, the Franco-German 10yr spread tightened to just 71.3bps yesterday, which is the tightest it’s been since mid-September.
Finally on central banks, today is also set to bring the ECB’s review on where they see r*, or what’s called the neutral/natural/equilibrium interest rate. In simple language, it’s the rate at which monetary policy is neither stimulating nor restricting the economy, hence “neutral”. But it’s a theoretical concept that can’t be directly observed, so economists have a range of estimates for where that is for different countries. For markets, the significance is it’ll offer an indication of how far the ECB think their current deposit rate of 2.75% is above neutral, and hence how much further they might cut rates.
To the day ahead, and the main highlight will be the US jobs report for January. Other data releases include the University of Michigan’s preliminary consumer sentiment index for February (watch inflation expectations), along with German industrial production for December. From central banks, we’ll hear from ECB Vice President de Guindos, the Fed’s Bowman and Kugler, along with the BoE’s Pill.