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Global Markets React to Surprising US Jobs Data, Dimming Hopes for Early Rate Cuts

In a twist that caught investors off guard, global markets experienced mixed fortunes on Friday following a substantial rise in US private-sector jobs, contrary to expectations for an imminent interest rate cut. The news triggered a pullback across various markets and added to concerns that the recent end-of-year rally may have outpaced itself, prompting investors to reconsider positions in major gainers, particularly tech giants like Apple and Amazon.

The setback came as payroll firm ADP released data indicating a more significant-than-anticipated increase in private-sector jobs last month, surpassing both forecasts and November’s figures. While the report showed a slowdown in wage growth, it reinforced the perception of a tight labor market, posing a potential challenge to the Federal Reserve’s target of bringing down inflation to its two percent goal, which currently stands at 3.3 percent.

Contrary to earlier expectations of an interest rate cut in the first quarter of the year, Bloomberg News reported that traders now see about a 65 percent chance, down from approximately 85 percent the previous week. Analysts suggest that the jobs data provided no urgency for policymakers to implement rate cuts in the near term.

This development follows the recent release of minutes from the Fed’s December meeting, where officials indicated their intention to maintain borrowing costs at a two-decade high for an extended period, prioritizing control over inflation.

Investor attention now turns to the forthcoming non-farm payrolls report, scheduled for later on Friday. This report holds significant weight in influencing Federal Reserve decision-making, with experts suggesting that a stronger-than-expected report could setback stocks, aligning with expectations of rate cuts later in 2024.

With hopes for an early rate cut diminishing, traders have been quick to capitalize on recent gains, impacting the Nasdaq, which experienced its fifth consecutive day of losses — the worst streak since December 2022 — as the tech sector faced increased pressure.

Asian markets echoed the unease, with several exchanges swinging between losses and gains throughout the day. Tokyo, Singapore, Manila, Mumbai, and Jakarta saw positive movements, while Hong Kong, Shanghai, Sydney, Seoul, Wellington, Taipei, and Bangkok experienced declines.

Meanwhile, the yen continued to weaken in response to expectations that the Fed would not be raising rates in the first quarter. Analysts also noted that the recent earthquake in Japan on New Year’s Day might prompt the Bank of Japan to defer plans for tightening monetary policy.

In summary, the unexpected US jobs data has introduced a new element of uncertainty into global markets, challenging earlier assumptions of an imminent interest rate cut and prompting investors to reassess their strategies in light of evolving economic conditions. The coming weeks are likely to be crucial in determining the direction of monetary policy and its impact on various financial markets.

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