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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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US labour report stokes late-week rally (weekly update)


This was another holiday-shortened week, with most markets closed on Monday for the New Year’s Day holiday.

It made little difference as the year initially started poorly, influenced by trends that have shaped much of the latter months of 2022. However, a “goldilocks” non-farm payrolls report for December, released Friday before US markets opened, cheered investors and led to a sharp rally in US stocks and bonds.

In the US, the news that shaped investor sentiment this week was mainly:

  • The release of the minutes from the FOMC meeting on Dec 13-14 (here), in which the Fed raised the Fed Funds rate 50bps (following four increases of 75bps/meeting)

  • Stronger-than-expected US jobs growth for December according to data released on Thursday by ADP (here), and

  • The employment (non-farms payroll) report for December from the US Dept of Labor (here) released on Friday before the market opened, which showed solid labour market growth in December, a slight decrease in the unemployment rate (to 3.5%), and a moderation in wage growth.

The December non-farms payroll report was particularly encouraging, as it showed a fine balance between continued labour market strength and moderating wage growth. The report was considered positive for risk markets, since lower wage growth suggests that the Fed’s hawkish approach is working. With wage growth slowing, it raised investor hopes that the Fed might be more generous at the next FOMC meeting starting on Jan 31st, meaning that a 25bps increase in the Fed Funds rate might be more likely (than a larger increase of 50bps). This cheered both stock and bond investors, although I had thought that a 25bps was more or less baked in anyhow prior to the jobs report. Nonetheless, it was nice to see markets start the year on the right foot following a dismal 2022.

Earnings (4Q22) start this week, with four major US banks releasing earnings on Friday (JPM, C, WFC and BAC), followed by Goldman and Morgan Stanley the following Tuesday (Jan 17th). I read some interesting things in Factset (here) this morning, worth noting as you are gearing up for the coming weeks:

  • Expectations for 4Q22 earnings are a decline of 4.1% (YoY), which would be the first YoY quarterly decline since 3Q20. This is a sharp revision from 4Q22 expectations on Sept 30th, which was for an increase of 3.5% YoY

  • Forward P/E for the S&P 500 is 16.5x, lower than the 5-year (18.5x) and 10-year (17.2x) averages, respectively.

Markets this week

The December employment report sparked a significant rally on Friday in stocks and bonds, with the S&P 500 up 2.4% on the day, and the 10-year UST yield lower by 16bps. This wiped out losses during the first three trading sessions of the year, enabling US equities and Treasuries to start the year on a positive tone. Equities were even stronger in the UK and Europe, with the FTSE 100 and STOXX 600 significantly better throughout the week, capping a strong start to the year. The Nikkei 225 was the only index that started the year in the red. Yields fell across the UST curve this week, more severely at the longer end, causing the 2-10 year curve inversion to steepen. Most other assets were better bid, too, aside from oil, which tumbled 8.2% on the week. One other thing to note is that gold reached its highest level this week in eight months.

Below is a summary table of markets for this week.

What’s ahead that matters?
  • Economic data this week will be largely focused on inflation data for December, with CPI releases for Japan (Mon), China (Weds) and the US (Thurs). In the UK, retail sales data for Dec will be released on Tues, and Nov GDP and manufacturing data will be released on Friday.

  • Earnings for S&P 500 companies for the most recent quarter will start on Friday.

    • JP Morgan, Wells, Citi and Bank of America all report FY earnings on Friday, Jan 13th, followed by Goldman and Morgan Stanley on Tues, Jan 17th

    • The onslaught of tech earnings begin Jan 19th with NFLX, followed by MSFT (Jan 24th), TSLA (Jan 25th), META (Feb 1st), AMZN and AAPL (Feb 2nd), and GOOG (Feb 7th).

    • The easiest-to-view website I have found for tracking the earnings calendar is here (Interactive Investors)

  • Upcoming central bank meetings:

    • Bank of Japan – Jan 17th-18th and Mar 9th-10th

    • Federal Reserve Jan 31st/Feb 1st and Mar 21st-22nd

    • Bank of England Feb 2nd and Mar 23rd

    • ECB – Feb 2nd and Mar 23rd

The Tables

Global equities

US equities

US Treasuries

Corporate bonds (credit)

Safe haven and other assets


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