Work all day, sleep all night

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This past week could be described as one where equity markets consolidated the gains made over the past several weeks, and bond markets continued to rally confidently in the hope that the Fed will cut interest rates sooner rather than later. March seems to be fast becoming the consensus for the first cut and 1.25% in cuts for the year ahead. Equities are not apparently concerning themselves that the bond market is bringing forward the timing, which could reflect too optimistic a view on the US economy; rather, the inflation dragon is slain. Inflation is dead; long-live inflation is now the message and an economy that can weather last year’s aggressive monetary tightening can survive anything. We come in for a soft landing and perhaps the captain’s warning of turbulence ahead is being ignored.

Today’s job report will put this test view to the test. A strong employment report could challenge the bond markets’ view that the Fed is closer to pivoting, as the technical term goes. A weak employment report could suggest the bond market is correct, but the equity investor may fear the storm clouds may be darker than feared. Goldilocks may need her porridge to be just right.

It was back to chasing big tech yesterday as Alphabet revealed the power of its next-generation AI model Gemini Aside from this bright news, it was a mixed day for individual sectors, although the second-tier stocks continued their recent run. There was a modest piece of good news from the Chinese economy as exports rose year over year in November, admittedly by only a fraction, but marked the first time since April this year. Import data was slightly weaker than expected. Energy prices continue to fall as there seems to be little shortage of black gold at present, helping fuel (sorry) expectations that inflation pressures are further easing.

European stock markets look to be starting the day positively ahead of the much-anticipated jobs report.