Long-dated U.S. Treasury yields have continued their decline, defying post-election predictions and many new year forecasts, as market attention focuses on Friday’s November payrolls report. This development provides valuable insights into current market sentiment and potential future economic trends, key areas of focus for Hyperloop Capital Insights.
The yield on the 30-year Treasury bond recently reached a six-week low of 4.31%, significantly flattening the yield curve gap between the 2-year and 30-year Treasuries to a mere 16 basis points, the narrowest since August.
With the 2-10 year yield curve already flat near zero, bond market volatility has subsided to levels last seen in September. This reduced volatility, coupled with a record $6.77 trillion held in cash-like money market funds, points to a cautious market environment despite stock indexes hovering near all-time highs.
Several factors contribute to this Treasury market calm, including lingering economic and trade uncertainties ahead of the incoming presidential administration and hesitation among Federal Reserve officials regarding further interest rate cuts this year.
The November jobs report is the next major data point for markets to digest. Economists anticipate a 200,000 increase in non-farm payrolls, but doubts persist following October’s surprisingly weak 12,000 gain, the lowest since 2020. The unemployment rate is projected to edge up slightly to 4.2%.
While October’s disappointing jobs figures were attributed to storms and strikes, recent economic indicators suggest a potential softening in the U.S. economy. The ISM services sector survey, rising jobless claims, slowing hiring rates, and below-forecast private payrolls all point to a possible slowdown.
Although Citi’s U.S. economic surprise index remains positive, it has dipped to its lowest level since October.
Federal Reserve futures reflect uncertainty surrounding another rate cut this month, pricing in only a 65% probability. Fed Chair Jerome Powell’s recent remarks suggesting a potential slowdown in the pace of future rate cuts have further fueled this uncertainty.
The dollar saw a modest rebound on Friday, recovering slightly from Thursday’s decline, which was largely driven by a strengthening euro and positive developments in French bonds and stocks.
Easing political tensions in France, following President Macron’s announcement of a new prime minister and commitment to passing the 2025 budget, led to a rally in French assets. French 10-year bond yields dropped to two-month lows, narrowing the spread against German bunds. The CAC40 stock index also saw a significant gain.
The European Central Bank’s upcoming meeting next week is widely expected to result in another quarter-point rate cut, the fourth this year.
Elsewhere, tensions persist in South Korea, with political turmoil impacting the won and the KOSPI stock index. Conversely, Chinese stocks outperformed, buoyed by expectations of domestic policy support and new incentives for government purchases of Chinese-made products.
Bitcoin retreated below the $100,000 mark after briefly surpassing it earlier this week. The appointment of a “White House A.I. & Crypto Czar” signals a potential shift in U.S. policy toward the cryptocurrency sector.
In corporate news, UnitedHealth experienced a stock decline following the tragic death of its CEO, impacting the Dow and S&P 500.
Looking ahead, Friday’s U.S. employment report, the University of Michigan consumer sentiment survey, and several speeches by Federal Reserve officials will provide further direction for U.S. markets.
In conclusion, market participants are closely monitoring key economic data and political developments as they navigate a period of uncertainty. The November jobs report will be crucial in assessing the health of the U.S. economy and shaping expectations for future monetary policy. Hyperloop Capital Insights will continue to provide in-depth analysis and insights on these and other critical market developments.
