The ISM Services Index and job vacancies in the USA exceeded expectations, showing resilience in the economy and the labor market, driving the dollar stronger and US bond yields higher. Inflation data from Europe and the Swiss Franc indicates a slowing trend, while the labor market in the Eurozone remains robust. The Global market is sensitive to expectations regarding US policy, with significant impacts on the bond and Forex markets.

The economic data from the USA performed strongly, bringing policy focus into view.

Data released yesterday from the USA outperformed expectations, showing resilience in economic activity and the labor market. The ISM Services Index recorded 54.1 in December, above the market expectation of 53.3 and the previous figure of 52.1. This growth was mainly due to a significant rise in the services prices paid sub-index, which jumped from 58.2 in November to 64.4, reaching the highest level since February 2023. However, in contrast to the ISM data, similar PMI indices continue their decline, indicating a divergence in the market’s outlook on the services sector.

Meanwhile, the JOLTS report showed that job vacancies in the USA reached 8.1 million in November, exceeding the market expectation of 7.7 million, marking the highest level since May of last year. However, hiring activity has slowed down, and involuntary layoffs have slightly increased. This indicates that while labor demand remains at a healthy level, the overall market tightness is easing.

Following the release of the above data, market expectations for the Federal Reserve to maintain a tough stance have warmed. The dollar strengthened, and Treasury yields rose, especially the increase in long-term yields further indicates a re-evaluation of the market’s views on the future interest rate path.

Economic data from Europe continues to signal a slowdown in inflation.

The HICP inflation rate in the Eurozone rose to 2.4% in December as expected, mainly due to the base effect of energy prices. However, core inflation remains at 2.7%, reflecting a sustained trend of slowing inflation. Monthly data indicates a 0.30% month-on-month increase in core services inflation, but this growth was achieved on the basis of a low base in November, showing that the overall inflation momentum remains unchanged.

The labor market in the Eurozone has also shown resilience, with the unemployment rate remaining at a historical low of 6.3% in November, and the number of unemployed decreased by 0.04 million, setting a new historical record. This data, combined with the growth in employment in the third quarter, indicates that although survey Indicators are softening, hard data still shows that the labor market remains strong.

The Swiss Franc inflation data for December is largely in line with market expectations. The overall inflation rate is 0.6%, while the core inflation rate is 0.7%. Although the month-on-month data has further slowed down, this provides a rationale for the Swiss National Bank to consider another rate cut in March.

Global market reactions and risk appetite.

In the bond market, although European inflation data did not change market expectations for the European Central Bank's recent policies, strong data from the USA fueled a broad sell-off in the bond market, especially with rising yields on the long end. This bearish steepening trend indicates that the market is more sensitive to the resilience of the USA economy and the prospects of policy.

In the Forex market, the US dollar strengthened due to strong data, causing the EUR/USD to fall below 1.0350. After the release of the Swiss Franc inflation data for December, the EUR/CHF briefly rose but subsequently fell back.

Summary

Overall, yesterday's performance in the global markets reflected the ongoing impact of macroeconomic data and policy expectations on risk assets. Against the backdrop of the Federal Reserve maintaining a hawkish stance, Analysts believe that the rise in the US dollar and US bond yields may continue to dominate market trends, while signs of slowing inflation in the European economy provide support for the regional market, with the market closely monitoring the upcoming economic data.