The market is entering the week with heightened caution toward risky assets, driven by concerns over Federal Reserve policy and Trump administration measures. Volatility in U.S. Treasuries, record outflows from Bitcoin ETFs, and year-end declines in U.S. stocks signal an uncertain environment for investors. The upcoming non-farm payrolls report is expected to be pivotal in shaping market sentiment.

Key Events to Watch This Week:

  1. Monday (22:30 UTC): Speech by Federal Reserve Governor Lisa Cook.

  2. Tuesday (23:00 UTC):

    • U.S. December ISM Non-Manufacturing PMI.

    • November JOLTs Job Openings.

  3. Wednesday (21:15 UTC): Release of December ADP Employment Data.

  4. Thursday:

    • 03:00 UTC: Minutes from the Federal Reserve’s December Monetary Policy Meeting.

    • 20:30 UTC: U.S. December Challenger Job Layoff Data.

  5. Friday (21:30 UTC):

    • U.S. December Unemployment Rate.

    • U.S. Non-Farm Payroll Data (Seasonally Adjusted).

Market Implications:

Labor Market Focus:
The non-farm payroll report will offer insights into labor market health, marking the first clean data set in months without one-off distortions. Expectations are for job growth to align with recent averages, signalling a gradual cooling of labor demand.

Fed Policy Influence:

  • UBS Outlook: The report could justify the Fed's further reduction of interest rates.

  • Strong labour data: This may limit room for rate cuts.

  • Weak labor data: This could increase expectations of more aggressive cuts.

Market Reactions:

  • A weaker labor market may strengthen dovish expectations, while strong numbers might stabilize the U.S. dollar index, which remains resilient.

  • Hedge Activity: Rising volatility in U.S. Treasuries and ETF outflows highlight growing caution.

Market Sentiment:

  • Investors are bracing for significant volatility as labour data and Fed minutes provide clarity on the central bank’s trajectory.

  • UBS projects the labor market to cool gradually, offering the Federal Reserve space to manoeuvre without drastic policy shifts.

This week’s economic indicators, particularly the non-farm payroll data, will be crucial in determining the Federal Reserve’s path forward and broader market trends.