As the new year begins, Wall Street is eagerly anticipating the "Non-Farm Payroll Super Week." Although market sentiment warmed last Friday, overall post-Christmas trading has been cautious, with increased volatility across various assets reflecting investors' growing wariness toward risk assets.
Over the past year, the robust resilience of the U.S. economy and the Federal Reserve's accommodative policies supported the rise of risk assets. However, the market has recently started to re-evaluate the inflationary pressures from potential policies under Trump. The ten-year U.S. Treasury yield recorded its biggest quarterly increase in over two years, causing ongoing turbulence in the bond market; the stock market also suffered an unusually deep year-end decline, and the ETF tracking Bitcoin witnessed the largest capital outflow in its history. These signs indicate that market sentiment is gradually shifting from last year's high-risk appetite to caution.
This week's Non-Farm Payroll data is the market's focus. Previous employment reports have been skewed by distorted data, failing to reflect real trends. This week's report might provide the first clear picture of labor market conditions. Investors are hoping for a "moderate" report—neither too strong nor too weak—to avoid overly influencing the Fed's future policy path. Additionally, the minutes of the Fed's December meeting, scheduled for release on Wednesday, are eagerly awaited. The minutes will reveal internal disagreements among policymakers on rate cuts and their specific assessments of inflation risks.
Despite the December Fed meeting having just one vote against a rate cut, the dot plot showed that up to four officials were hesitant about that decision. More notably, in that meeting, 15 out of 19 officials believed that inflation still faced upside risks, compared to only 3 at the September meeting. This indicates a growing concern within the Fed over inflation trends, and the uncertainty of future policies may continue to exacerbate market volatility.
As the new year begins, Wall Street investors need to remain vigilant in a complex market environment. The volatility in the bond market, adjustments in risk assets, and uncertainty in the Fed's policy path make this week's Non-Farm Payroll data and the Fed minutes key factors in determining market direction. The market's performance over the coming days could provide important guidance for the entire year's trend.
