Global Markets Brace for Jobs Report as Bond Yields Edge Higher and Dollar Strengthens

Global equity markets faced downward pressure on Friday as traders braced for the impending U.S. jobs report, which has the potential to either intensify or alleviate the ongoing sell-off in the bond market. The U.S. dollar remained near a two-year peak amidst this market uncertainty. Both the Nasdaq and S&P 500 futures dipped by 0.3%, while Wall Street remained closed to honor the late former U.S. President Jimmy Carter. Meanwhile, European markets showed minimal movement, with the Pan-European STOXX 50 and UK FTSE futures almost flat.

The eagerly anticipated nonfarm payrolls data is set to be released at 8:30 AM Eastern Time (1:30 PM GMT), and analysts forecast an increase of 160,000 jobs for December, with the unemployment rate steady at 4.2%. A figure that exceeds expectations could trigger a spike in 10-year Treasury yields, potentially reaching 13-month highs, while also bolstering the U.S. dollar. On the flip side, ING analysts suggest that for yields to stabilize, job growth would need to fall below 150,000. As Padhraic Garvey, regional head of research for the Americas at ING, indicated, "While payrolls are always critical, significant deviation from consensus is necessary to create real impact this time." He emphasized that current momentum in Treasury rates may require robust numbers to sustain this trend, leaving yields vulnerable should the outcomes meet prevailing expectations.

In Asian markets, Japan's Nikkei index declined by 0.9%, capping a weekly loss of 1.6%. The MSCI Asia-Pacific index, excluding Japan, slipped 0.5%, heading toward a 1.2% weekly retracement. Chinese blue-chip stocks decreased by 0.4%, and Hong Kong's Hang Seng index fell by 0.5%. Additionally, yields on Chinese government bonds increased following the central bank's announcement of temporary halts on Treasury bond purchases due to limited supply.

On the U.S. financial front, remarks from Philadelphia Fed President Patrick Harker indicated expectations for future interest rate cuts, although he acknowledged that immediate reductions are not necessary. Conversely, Kansas City Fed President Jeff Schmid expressed hesitation regarding rate cuts. Market anticipations have now adjusted to predict around 43 basis points of U.S. rate reductions by 2025, compounded by fears surrounding a potentially inflationary fiscal agenda from President-elect Donald Trump—elements contributing to the uptick in long-term yields.

The benchmark 10-year U.S. Treasury yield rose by 1.5 basis points, reaching 4.6957%, just shy of an eight-month high of 4.73% recorded earlier in the week. A break above the pivotal 4.739% mark would likely invite bearish sentiment targeting the psychologically significant 5% threshold, a level not seen since 2007.

As yields have climbed—approximately 9 basis points this week—the dollar index increased to 109.30, marking its sixth consecutive week of gains. Concerns regarding the state of the British economy have put downward pressure on the pound, which fell by 0.2% on Friday to $1.2278, hovering near its lowest level since November 2023 and reflecting a weekly decline of 1.1%.

On a brighter note for commodity traders, oil prices experienced a slight uptick, with U.S. West Texas Intermediate crude futures rising by 0.5% to $74.32, poised for a modest weekly increase. Additionally, gold saw an impressive rally, with prices up 1.3% for the week, now trading at $2,674.44 per ounce—close to its highest level since December.