Rough start in Europe, as market uncertainty continues after mixed jobs report

• European markets head lower after mixed US jobs report
• Inflation dominates in the week ahead
• Fourth quarter earnings season kicks off this week

Equity markets have continued to struggle as we kick off another week afresh, with European and Asian stocks heading lower once again. Friday’s US jobs report brought fresh concerns over the likeliness of the Fed to cut rate in March as markets have been widely anticipating, with a hot payrolls figure coming alongside a higher wage growth reading. However, the breakdown highlighted that much of that job growth came from those taking on part-time work, with full time jobs moving sharply lower. With a sharp decline in the ISM services PMI, job growth propped up by part-time roles, and a higher unemployment rate, we have seen markets return to the view that March will see the Fed commence their easing cycle.

This week brings a major focus on inflation, with tonight’s Tokyo CPI figure kicking off a period that also sees Australian, US, and Chinese consumer prices reported. Coming at a time where markets remain under pressure over fears that we may see the Federal Reserve push back over the current trajectory expected by markets, the ability to maintain the downward trajectory for inflation is key to the health of the market.

The commencement of the fourth quarter earnings season brings a fresh source of directional bias for markets, with traders watching closely for early signs over US consumption in the festive period. The overreliance on big tech highlights the importance of a strong showing this quarter, with AI earnings once again likely to dominate as traders attempt to gauge the potential size and growth rate of this new innovation. This week will be dominated by the big banks, with many hitting long-term highs as concerns of a hard landing ease. This could allow them to save money as funds set aside for bad loans are freed up. With a soft landing allowing the Fed to cut rates at a slower pace, it could be the banks that benefit from a more hesitant approach from Powell & co. Nonetheless, with many banks sitting on massive unrealized losses thanks to the unexpected surge in bond yields, the typical view that banks want higher rates has been challenged over recent years.