January's job gains may have been concentrated in the healthcare, social services and construction sectors, but the main takeaway for markets is that the labor market has likely stabilised into 2026 - much like Fed Chair Jerome Powell said it had last month.
And so thinking in the rates market has returned to where it was back then. Two cuts are priced in the futures curve for the year, with the first of those not fully priced until July.
If the labor market has stabilized, that allows the Fed to focus on its inflation mandate and it's still well above target there. Friday's CPI report now takes centre stage.
What stabilization doesn't do is support Donald Trump's view that America should have the lowest borrowing rates in the world.
And the release of the CBO's latest 10-year budget and debt outlook shows why U.S. Treasury borrowing costs are not the lowest in the world. The nonpartisan organization expects the cumulative 10-year deficit to be some $1.4 trillion, or 6%, higher than projected in January 2025. It also forecasts the debt-to-GDP ratio topping its 1946 peak of 106% in 2030.
U.S. and global markets were relatively calm on Wednesday despite all that. On Thursday, Wall Street futures were up ahead of the bell, European stocks hit new records and U.S. Treasury yields were mostly back in the middle of recent ranges.
The big currency mover was China's offshore yuan, which continues to surge to new three-year highs ahead of the Lunar New Year holidays.
Relatively upbeat corporate earnings topped the European news flow, with the EU's special summit on economic reform and competitiveness in the background.
In deals news, shares in British money manager Schroders surged 29% following the announcement that it's being taken over by U.S. asset manager Nuveen for 9.9 billion pounds ($13.5 billion). That would be one of Europe's largest ever fund management deals, marking the end of an era for the 222-year-old firm. It also may speak to the year's big rotation into so-called value stocks and markets, with relatively cheap UK markets attracting global investors.
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