Mixed US Jobs Data, Cooling UK Inflation Keep Rate-Cut Expectations Alive.
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Markets struggled to find direction after a mixed US jobs report failed to provide a clear signal for policymakers or investors. While job creation slightly exceeded expectations, rising unemployment and downward revisions to previous data reinforced the view that the US labour market is cooling.
US Jobs Report Keeps Rate-Cut Expectations Alive
November nonfarm payrolls rose by 64,000, slightly above forecasts. However, this was offset by a sharp downward revision to October’s data and a rise in the unemployment rate to 4.6%, the highest level since 2021.
The data was seen as too inconsistent to materially change the Federal Reserve’s outlook. Markets continue to expect interest rate cuts in 2026, though pricing suggests a pause in January. Fed funds futures imply just 6 basis points of easing in January, but around 58 basis points of cuts over the full year.
US Treasury yields moved both higher and lower during the session before ending slightly lower, reflecting the lack of conviction in the data.
Wall Street Mixed as Tech Offsets Broader Weakness
US equity futures slipped early Wednesday as investors digested the report. The S&P 500 fell 0.24% to 6,800.26, while the Dow Jones dropped 0.62% to 48,114.26. The Nasdaq gained 0.23% to 23,111.46, supported by strong gains in technology stocks.
Tesla surged 3.1% to a record high, driven by optimism around AI and electric vehicles. Nvidia rose 0.8%, while Meta gained 1.5%, helping stabilise the tech sector.
Energy stocks underperformed, with Exxon Mobil and Chevron falling more than 2%, as oil prices briefly dipped below $55 per barrel before rebounding.
European Markets Drift Lower on Growth Concerns
European equities opened weaker amid global risk aversion and expectations that central banks may keep rates steady for longer. The Euro Stoxx 50 fell 0.58% to 5,718.95, pressured by signs of slowing US demand and rising unemployment.
France’s CAC 40 closed at 8,106.16, while Germany’s DAX hovered around 24,076.87. The broader STOXX 600 remained flat at 579.80, supported by gains in defensive sectors. Switzerland’s SMI edged up 0.10% to 13,049.75, while Spain’s IBEX 35 dropped 0.70% to 16,921.90.
Energy shares initially fell after Brent crude slumped nearly 3% to its lowest level since February 2021, though prices later recovered on supply concerns.
Asia Mixed as Investors Await Fresh Signals
Asia-Pacific markets delivered mixed performance. Japan’s Nikkei rose 0.43% to 49,597, supported by a weaker yen and encouraging domestic data. Hong Kong’s Hang Seng gained 0.77% to 25,429.50.
In contrast, Singapore’s Straits Times Index slipped 0.19% to 4,570.82, while Indian markets were set for a cautious open as foreign investor flows remained sensitive to global data and trade uncertainty.
Commodities and FX: Oil Rebounds, Dollar Recovers
Oil prices rebounded sharply after comments from former US President Donald Trump regarding a possible blockade of Venezuelan oil tankers, reversing earlier losses.
The US dollar initially weakened, with the DXY index falling to 97.87, but later rebounded to 98.16, gaining against most G10 currencies, particularly the Japanese yen. The British pound strengthened after strong UK wage data.
Gold and other safe-haven assets saw modest demand as equity markets drifted and investors awaited further guidance from Fed Chair Jerome Powell and upcoming US data, including retail sales revisions.
UK Inflation Miss Fuels Rate-Cut Bets
UK inflation cooled more sharply than expected in November, strengthening market expectations for interest rate cuts from the Bank of England.
Headline inflation slowed to 3.2%, below forecasts of 3.5% from economists surveyed by Reuters and down from 3.6% in October. This marked the lowest inflation rate since March.
Core inflation, which excludes energy, food, alcohol, and tobacco, also fell to 3.2% from 3.4%, according to the Office for National Statistics (ONS).
What Drove Inflation Lower?
Additional downward pressure came from:
Lower tobacco prices, following a large increase a year earlier
Falling women’s clothing prices
However, Fitzner noted that while factory gate price increases slowed, the cost of raw materials for businesses continued to rise, highlighting ongoing pressures in parts of the supply chain.
Bank of England Cut Seen as Likely
The inflation data followed figures showing UK unemployment rose to 5.1%, reinforcing expectations that the Bank of England will cut interest rates by 25 basis points to 3.75% at its meeting on Thursday.
Economists expect a 5-4 split among policymakers, with Governor Andrew Bailey likely to cast the deciding vote.
Chancellor Rachel Reeves welcomed the drop in inflation but warned that challenges remain.
‘I know families across Britain who are worried about the cost of living will welcome this fall in inflation. But there is more to do,’ she said.
With economic growth limited to just 0.1% in Q3, analysts argue that weakening demand and a loosening labour market are creating strong conditions for a rate cut.
‘These figures, alongside a wave of weak data, make a rate cut tomorrow look certain,’ said Suren Thiru, Economics Director at the ICAEW. ‘They also show the UK is moving towards a more manageable inflation environment.’
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Andria Pichidi
HFMarkets
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