As James Knightley wrote in his review of the US January jobs report, it was strong across the board. Strong payroll gains, a decent spread of industries hiring, lower unemployment and higher wages. The only whisp of grey cloud was the average work week falling. Financial markets, however, looked at these strong numbers and sold bonds and bought the dollar. Once again, the US yield curve flipped back into bearish flattening mode, which is bullish for the dollar against the activity currencies – i.e. commodity and emerging market currencies usually underperform.

This data clearly pushes back against the overriding narrative that the Fed will cut rates early and knocks a March cut off the table. By the close of play Friday, investors assigned around a 20% chance to a March rate cut – down from 50% a week earlier. The wild card to this Fed story remains the commercial real estate sector, where any regional bank stock coming under severe pressure does see early Fed easing being repriced. That is the risk rather than the base case, however. We look for the first Fed rate cut in May.

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