The US economy's robust December jobs report has significantly altered market expectations, with traders now slashing bets on Federal Reserve rate cuts for the year. The unexpected drop in the unemployment rate and a surge in job additions have fueled concerns about persistent inflationary pressures. This shift in sentiment is reflected in the swaps market, which now prices in only 26 basis points of total Fed cuts this year, down from 38 basis points prior to the jobs data. Bank of America Corp. has revised its forecast, no longer anticipating any rate cuts and warning of a potential rate hike instead.
The economic data has also led to a rise in bond yields and a stronger dollar, factors that typically weigh on stock prices by increasing borrowing costs and making US goods more expensive abroad. Additionally, the US's intensified sanctions against Russia have driven oil prices higher, further stoking inflation fears and complicating the Fed's policy outlook. As inflation gauges are set to be released next week, market participants brace for heightened volatility.
Oil prices have surged, with the current price of Brent crude (CO1) at $79.71 as of 16:11 on January 10, up from the last close of $76.92. The intraday high reached $80.76, reflecting the market's reaction to geopolitical tensions and inflationary concerns.