Investors on Tension as US Employment Report Could Be Key Signal for Economy
Next week, the financial world's attention will be focused on the monthly US employment report. This document could answer the main question: Are the latest worrying macroeconomic data a harbinger of serious problems for the economy?
Stock Market Volatility Increasing
The S&P 500 (.SPX), which recently hit record highs, has lost about 4% in recent weeks. At the same time, Treasury yields are falling, and the cryptocurrency market is also declining, with Bitcoin losing ground. All this suggests that investors are becoming increasingly cautious and taking a balanced approach to risky assets.
Inflation remains in focus: how the employment report may affect markets
Despite growing concerns about an economic slowdown, inflation remains in the spotlight for investors. The annual rate of price growth is still above the Federal Reserve's 2% target. This means that too strong labor market data could trigger a new round of unrest on Wall Street, in which case the Fed may refrain from further easing of monetary policy, which market participants are counting on.
Hope for lower rates
One possible positive factor for the stock market remains the prospect of a softer monetary policy. Recent weak economic reports have strengthened expectations that the Fed will act more decisively than previously expected. According to LSEG, investors are pricing in at least two more interest rate cuts by December.
These expectations are supportive of the market, as lower rates traditionally help make borrowing cheaper and corporate profits stronger. However, strong employment data could adjust these forecasts, forcing investors to rethink their strategy.
Public sector layoffs: a threat to consumer demand
A new wave of layoffs in the federal government is adding to the tension. President Donald Trump has initiated a major cut in government workers, and on Wednesday the administration announced more steps in this direction. Tens of thousands of government employees have lost their jobs in recent weeks, according to monitoring agencies.
The trend is worrying economists. According to Torsten Slok, chief economist at Apollo Global Management, uncertainty among government workers and contractors could force U.S. households to reconsider their spending.
"There is a growing risk that consumers will begin to cut their spending, refraining from making big purchases," Slok said.
A Critical Moment for the Economy
Economists continue to watch the situation closely to determine whether the business cycle has reached a turning point.
"We remain cautiously optimistic about the economic outlook, but we are also closely monitoring macroeconomic indicators for potential signs of a downturn," Slok said in a note Thursday.
Amid all these factors, the U.S. jobs report could be a turning point, either boosting confidence in the market or triggering a new wave of sell-offs if the data falls short of investor expectations.
Focus on Economic Data: The Fed and the Market Waiting
Investors will get more data on the state of the U.S. economy next week, including industrial production and service sector activity. Several Federal Reserve officials are also expected to make comments that will help gauge their current view of the economy.
These reports could play a key role in shaping market expectations for future Fed policy, especially given the ongoing uncertainty in macroeconomic data and stock market volatility.
Trump's policy statements continue to rock markets
Investors continue to closely monitor statements from Donald Trump, who remains a major driver of market instability. This week, he once again caught the attention of traders by expressing hope for a temporary waiver of high tariffs on imports from Mexico and Canada, while simultaneously announcing new duties on cars and products from Europe.
These statements triggered a noticeable reaction in the markets.
"Yesterday was another example of how anything the White House or the president says can instantly change market sentiment," said Matthew Mailey, chief market strategist at Miller Tabak.
Anticipation of new trade decisions adds tension to market dynamics, especially given the upcoming release of macroeconomic data.
Asian growth and Bitcoin's explosive jump
Asian stock markets started the week with a cautious rise, showing a positive reaction to the expectation that new trade tariffs could be eased or postponed.
Against this backdrop, the cryptocurrency market showed a sudden surge in activity. Bitcoin rose sharply after the announcement of the inclusion of cryptocurrencies in the new US Strategic Digital Asset Reserve.
President Trump announced on his social media that the reserve will include five major digital currencies, including Bitcoin, Ethereum, XRP, Solana and Cardano.
The news immediately affected cryptocurrency quotes:
- Bitcoin — jumped 10%, reaching $92,905;
- Ether — initially showed a 13% increase over the weekend, but then corrected to $2,443.
These movements indicate growing recognition of cryptocurrencies at the official level, which could change the dynamics of the digital market in the coming months.
Asian Markets Gain on Positive Data
Asia-Pacific stock markets started the week with a solid gain. The broad MSCI Asia-Pacific index outside Japan rose 0.3%, while Japan's Nikkei added 1.0%. Chinese blue chips also showed positive momentum, rising 0.8%.
The Chinese market was boosted by fresh economic data, with the Caixin/S&P Manufacturing Purchasing Managers' Index (PMI) rising to 50.8 in February, up from 50.1 in January. The reading signals a gradual recovery in China's manufacturing sector, giving investors optimism.
European and U.S. Futures Remain Steady
U.S. stock indexes including the S&P 500 and Nasdaq held steady after an unexpected rally on Friday that helped offset some of the losses from a tough week.
European markets are also showing a modestly positive mood:
- EUROSTOXX 50 futures rose by 0.3%;
The rise is partly due to political factors - investors welcomed the news that European leaders agreed to develop a peace plan for Ukraine for the US administration. This decision followed tense negotiations between Ukrainian President Volodymyr Zelensky and Donald Trump in the Oval Office.
US: Worrying economic signals increase recession fears
While global markets are showing cautious optimism, the economic situation in the US is causing increasing concern. The latest macroeconomic reports were weaker than expected, which led to a revision of economic growth forecasts.
The GDPNow indicator from the Atlanta Federal Reserve, which tracks the pace of economic growth in the US, fell sharply from +2.3% to -1.5% in annual terms. The sharp turnaround has fueled speculation that the U.S. economy could be headed toward a recession.
Economists say a slowdown like this could force the Fed to rethink its policy and take more aggressive action to cut interest rates. However, the market remains in limbo as it awaits more data to either confirm or refute these alarming predictions.
Trade tensions: new tariffs to go into effect
Concerns about U.S. economic stability deepened on Sunday after Commerce Secretary Howard Lutnick confirmed that tariffs on Canadian and Mexican imports would go into effect on Tuesday.
Donald Trump must make a final decision on whether to keep the tariffs at 25% or whether the White House will revise them.
The move could have a major impact on North American trade relations, as well as on the cost of goods and supply chains. Experts warn that further escalation of trade policy could be another factor destabilizing the U.S. economy.
New Trade War: China Prepares Countermeasures
The United States is imposing an additional 10% tariff on Chinese imports this week, which could exacerbate already tense trade relations between the world's two largest economies. It coincides with the start of the third annual session of China's National People's Congress, which begins Wednesday.
Experts expect that Chinese authorities may announce new economic incentives to soften the impact of the American tariffs. However, a tough response from Beijing, which could lead to a tougher trade confrontation with the United States, cannot be ruled out.
"Like many of Trump's previous tariff announcements, it is difficult to say whether this is a strategic move or a real change of course," said Michael Feroli, an economist at JPMorgan.
If the new tariffs go into effect, they could put significant pressure on the global economy, slowing growth and causing further price increases for American consumers.
ECB prepares for rate cut: signal for Europe
As US markets await the Fed's decision, the European Central Bank (ECB) is preparing for its own stimulus measures. On Thursday, the ECB is expected to cut its interest rate by 25 basis points to 2.50%.
Weak macroeconomic data in the eurozone has increased analysts' confidence that the rate could fall below 2% by the end of the year. This should support the region's economy, but could also weaken the euro and affect inflation expectations.
FX markets: Euro strengthens amid peace talks
On global currency markets, the euro showed a 0.5% increase, reaching $1.0421. This rise is associated with optimism about possible progress in negotiations on a peace agreement between Russia and Ukraine. However, on Friday, the European currency weakened to $1.0360, indicating continued market uncertainty.
The US dollar, which strengthened 1.7% last week, was under pressure again. It fell to 1.4445 Canadian dollars and also weakened against the Mexican peso, reaching 20.4586.
The US currency also showed a slight decline against the Japanese yen, falling to 150.32 yen per dollar. The dollar index, which reflects the dollar's performance against a basket of major currencies, recorded a slight decline to 107.180, which signals mixed investor sentiment.
Gold regains ground after last week
In the precious metals market, gold gained 0.5%, rising to $2,873 an ounce. This partially offset a 3% decline recorded last week.
The rise in gold prices is associated with ongoing concerns about global economic instability and geopolitical risks. Investors traditionally view this metal as a safe haven, especially amid volatile currency and stock markets.
Oil is growing after a week of decline
Oil prices started the week with positive dynamics, partially recovering from the losses of the previous period.
- Brent futures added 76 cents, rising to $73.57 per barrel;
- American WTI oil rose by 74 cents, reaching $70.50 per barrel.
Last week, the oil market came under pressure amid rumors that the United States could ease sanctions against Russian production, which would potentially increase global oil supply. An additional factor of uncertainty remains the risk of an escalation of the global trade war, which could negatively affect demand for energy.
Overall, the start of the week shows moderate optimism in the markets, but key macroeconomic events, including decisions of the Fed and the ECB, as well as possible new announcements on trade tariffs, can change the dynamics of assets at any time. Investors continue to closely monitor global events, waiting for new signals about the direction of the global economy.
