Jobs jolt rate bets

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Morning Bid U.S.

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What matters in U.S. and global markets today

By Mike Dolan, Editor-at-Large for Finance and Markets

World stock markets have been pretty buoyant as they digest the robust U.S. January employment report and dampened Federal Reserve rate cut expectations.

While the downward revisions to 2025 payrolls underscore last year's subdued hiring, the 130,000 payroll gain last month was almost twice the 70,000 forecast. The unemployment rate also unexpectedly fell to 4.3% - even as labor force participation rose - and average earnings growth accelerated.

I'll get into that and more below.

But first, check out my latest column on why Trump's rate call doesn't jibe with budget math.

And listen to the latest episode of the Morning Bid daily podcast. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

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Today's Market Minute

U.S. job growth unexpectedly accelerated in January, but the increase may exaggerate the labor market's health as jobs added in 2025 came in below estimates and remain a fraction of previous years.
A resurgent yen rode towards its biggest weekly gain in more than a year on Thursday, pressuring the dollar and suggesting a shift in mood in the currency market.
Kraft Heinz has halted efforts to split the company, in a surprise move that new CEO Steve Cahillane said was necessary due to deteriorating conditions in the food industry, though he called the challenges "fixable and within our control."
With U.S. labor's share of national income falling to the lowest since records began, those hoping that strong productivity growth might improve workers' lot are likely to be disappointed, writes ROI Markets Columnist Jamie McGeever.
Rival rail projects in Africa – one headed west, the other east – show how the world's great powers are vying for control of critical minerals, argues Asia Commodities and Energy Columnist Clyde Russell.

Jobs jolt rate bets

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.

Trump rate hopes and CBO budget math don't chime

President Donald Trump is insisting - and not for the first time - that U.S. interest rates should be the lowest in the world. Bond markets eyeing the latest long-term budget math beg to differ.

Trump's dogged insistence on slashing interest rates is increasingly looking a little farcical. While his appointees to the Federal Reserve - including new Fed Chair nominee Kevin Warsh - may well oblige the president by pushing for some additional easing, markets doubt there's more than 60 basis points of further rate cuts left in the whole cycle through the end of Trump's term, with 3% likely the floor for the foreseeable future.

Fed hawks seem determined to hold the line - and for good reason. Inflation is still above target, GDP is growing well above trend, the unemployment rate is more than a point below its 25-year average, investment spending is soaring and financial conditions are the loosest in years.

But 3% is clearly not what the president has in mind.

Graphics are produced by Reuters.

Read the full column

Today's key chart

Graphics are produced by Reuters.

U.S. job growth unexpectedly accelerated in January and the unemployment rate fell to 4.3%, signs of labor market stability that could give the Federal Reserve room to keep interest rates unchanged for some time while policymakers monitor inflation.

Today's events to watch

U.S. weekly jobless claims (8:30 AM EST)
U.S. 30-year bond auction
Fed's Stephen Miran and Dallas Fed's Lorie Logan both speak
U.S. corporate earnings: Airbnb, Expedia, Pinterest

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