The very robust US labour market data released on Friday was a shock for equity markets, which had surged in the aftermath of Powell's speech confirming a slower pace of rise in December. Non-farm payrolls (NFPs) came in at 263k, which was significantly higher than the 200k that had been anticipated, and average hourly wages rose 5.1% y/y, well above the 4.6% expected. The job report came as a surprise following an event hosted by the Brookings Institution on Wednesday, at which Powell emphasized the need to slow the pace of rate hikes as early as the December FOMC meeting, therefore solidifying a 50 basis point hike rather than a 75 basis point boost. Markets celebrated as they repriced Fed rate forecasts lower and factored in about 50 basis points of cuts in the second half of 2023. Fed rate expectations must now be reassessed in light of red-hot labour market statistics, as a higher-for-longer rate path gains traction. US Treasury yields rebounded after the release of the NFP report. The yield on the 2-year Treasury note increased by 12 basis points to 4.42%, and yields on the 10-year note surged by 8 basis points to 3.59%. The Treasury yield curve remains inverted, with the yield spread between the 10-year and 2-year maturities reaching -0.75%, the highest level since September 1981. The S&P 500 (US500) index retraced more than half of its post-Powell speech gains, dropping to 4,035 points as of 2:30 pm GMT and gaining 0.8% for the week. The tech-heavy Nasdaq 100 (US100) fell below 12,000 points also retracing nearly half of its weekly gains (1.9%). European equity indices were more steady. German Dax (DE40) held at about 14,500 points, flat on the week, while FTSE 100 (UK100) rose 1.5%, buoyed by positive Brexit developments. The Chinese domestic equity market (CN50) was the largest outperformer, gaining 7% on the week, as Chinese authorities further eased Covid restrictions amid widespread protests.
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