Daily Market Color

Japanese News Dominates Headlines as Markets Await U.S. Labor Data

Rates little changed ahead of nonfarm payrolls. Swap rates and Treasury yields opened higher after hawkish signals from Japan but fluctuated throughout the day to end little changed. Markets will parse tomorrow’s NFP and unemployment rate data, which are expected to rise and stay flat from last month, respectively. Meanwhile, equities rose on AI optimism, much of which was spurred by Google’s release of its largest ever AI model (Gemini) yesterday. The NASDAQ Composite rose nearly 1.40% while the S&P500 broke a 3-day losing streak and climbed 0.80%.

U.S. Nonfarm Payrolls and Unemployment Rate Graph

European traders bet on cuts as ECB blackout period starts. The Eurozone is digesting third quarter GDP contraction and rapidly softening inflation (2.4% YoY in November vs. 8.6% in January), prompting traders to strengthen rate-cutting bets. Just last week, markets expected the short-term borrowing rate to remain above 3% by the end of 2024; now it is expected to fall to 2.5%, with cuts to start as soon as next March. The ECB will announce their rate decision and release updated economic forecasts on December 14th.

European Policy Rate Outlook Graph

The end of negative rates in Japan? BOJ Governor Ueda fueled more speculation of a monetary policy change in Japan today after a meeting with Prime Minister Kishida on the topic. Separately, he noted that his job may be tougher in 2024, a sign that significant changes may be imminent. Market-implied odds of a hike in December climbed to ~30% from ~3% just two days ago, and the Yen climbed from ~147 per Dollar this morning to ~142. The 10-year JGB rose ~12bps to 0.758%, the largest jump in nearly a year.

10-year JGB (Japanese Government Bond) Yield Graph

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