Surging US jobs prompt caution on rate outlook

Bond traders pulled back their bets on the pace of the Federal Reserve’s expected cuts to the federal funds rate after delayed employment figures showed the US added more than twice the number of jobs economists predicted in January, stocks on Wall Street largely muted as investors rethink when they’ll see extra juice from cheaper finance.

Salesforce and Microsoft were near the bottom of the Dow Jones Industrial Average’s leaderboard as software firms remain out of favour after growing fears those types of firms face disruption from artificial intelligence tools, while advertising companies – which are also expected to be supplanted by large language models – were also weaker.

Earnings season continued in the US with Ford Motor Co reporting a record quarterly loss, while Mattel slumped after missing expectations on steep holiday discounting, Humana declined on a conservative outlook and Robinhood declined as its crypto business struggled.

Skellerup Holdings is an early starter in the domestic earnings season, with analysts picking a strong first half for the rubber goods maker when it reports today, while across the Tasman, the ASX is on the calendar having announced the unexpected exit of chief executive Helen Lofthouse earlier this week, while AMP, Insurance Australia Group, South32 and Origin Energy are also on the radar.

That was unexpected

Bureau of Labor Statistics figures showed the US added 130,000 jobs in January, twice what economists predicted, with the unemployment rate easing to 4.3%. The stronger-than-expected print prompted bond traders to pare back their bets on the Federal Reserve’s interest rate track, with the market pricing in a smaller chance of a cut to the federal funds rate in the coming months.

The kiwi dollar traded at 60.59 US cents at 7am in Auckland from 60.63 cents yesterday.

“Warmer than usual weather during the survey week which inflated the jobs figure and the fact that much of the job creation over the past year has been in the healthcare sector, offered a couple of crumbs for the doves to chew on, but the general conclusion was that this was a strong jobs report that justified a decent pause in the US monetary policy easing cycle,” Bank of New Zealand senior markets economist Jason Wong said in a note.

The prospect of a slower decline in interest rates kept stocks on Wall Street muted, with the Dow Jones Industrial Average down 0.1% in late trading, while the Nasdaq Composite dipped 0.2%. The S&P 500 was up 0.1% at 7am in Auckland.

Software companies remained out of favour with Salesforce and Microsoft among those pacing declines on the Dow as investors remain wary of the impact AI will have on the sector. Germany’s SAP and France’s Capgemini were also weaker, while Publicis and WPP also declined, with ad agencies also seen as being threatened by LLM tools.

European stock markets were mixed, with the UK’s FTSE 100 up 1.1%, while Germany’s DAX fell 0.5% and France’s CAC 40 dipped 0.2%.

Rugged earnings

Corporate earnings season continued, with Robinhood declining after gains from its new prediction markets offset softness from its crypto business, while automaker Ford reported a record quarterly loss on its latest tariff hit.

Insurer Humana fell after the insurer’s guidance was seen as being conservative, while toymaker Mattel slumped 22% after reporting skinnier margins as soft sales prompted a flurry of discounting in the holiday period.

Cisco Systems is due to report after the bell.

Across the Atlantic, French authorities are stepping up their investigation into tainted infant formula after the death of a third baby, although no causal link has been established so far. Nestle, Danone and Lactalis have all recalled the same product, while New Zealand’s a2 Milk Co has avoided the contamination.

Australian futures are pointing to a 0.4% decline for the S&P/ASX 200 index when trading opens today, after Commonwealth Bank of Australia’s strong earnings propelled the benchmark higher on Wednesday.

The antipodean earnings season continues, with wealth manager AMP, stock market operator ASX, miner South32 and insurer IAG among those reporting on the other side of the Tasman.

Skellerup is due to report first-half earnings on the NZX today, with analysts picking a 7% increase in net profit and a small lift in the interim dividend.

Local data today including Statistics New Zealand’s travel and migration figures for December, while NZ Debt Management is holding its weekly bond tender with $450 million of nominal bonds and $25 million of inflation-linked notes on offer.  

Reporting by Paul McBeth. Image from Nicolas J Leclercq on Unsplash.