- US stocks closed near session highs on Friday, as traders expect wage growth to slow, assisting the Fed in its fight against inflation. Treasuries rose, while the dollar fell.
- The S&P 500 began the new year up 1.5% on the week, while the Nasdaq 100 gained 0.9%. Both indices ended a four-week losing streak. The dollar extended its longest weekly losing streak in two months as job data fueled expectations that the Fed will slow its rate hike pace.
- Treasuries rose on Friday, with short-term yields falling sharply. The two-year policy-sensitive rate fell the most this week since November.
- The much-anticipated December jobs report failed to provide a clear picture of the state of the American labour market, particularly given that it came a day after two jobs readings indicated continued tightness. Hiring surpassed expectations for the month, and unemployment fell to its lowest level in decades. Traders continued to consider how this strength compares to the weaker gains in hourly wages, and what this means for future Fed policy.
- Recent data only complicates the central bank's task and increases market uncertainty. On Friday, Esther George of the Kansas City Fed warned that officials will face a difficult task in balancing inflation and employment. Other Fed officials have remained hawkish, saying that while data has been encouraging and inflation has begun to ease, the central bank still has work to do.
- Investors now expect the policy rate to peak at less than 5% this cycle, down from 5.06% just before Friday's jobs report. While traders are divided on the size of the February hike, with 33 basis points of tightening priced in, a quarter-point increase appears to be more likely than a half-point increase.
