Morning Bid: Jobs jolt rate bets

• January payroll gains of 140,000 nearly doubled the 70,000 forecast, while unemployment unexpectedly fell to 4.3% despite rising labor force participation and accelerating wage growth
• Rate futures now price only two cuts in 2026 with the first not fully expected until July, returning to expectations from when Fed Chair Powell previously indicated labor market stability
• Congressional Budget Office projects cumulative 10-year deficit $1.4 trillion (6%) higher than January 2025 estimates, with debt-to-GDP ratio forecast to exceed 1946 peak of 106% by 2030

Summary: Jobs Data Reshapes Fed Rate Cut Expectations

Key Employment Figures

U.S. January employment data significantly exceeded forecasts, with job gains nearly double the predicted 70,000. The unemployment rate unexpectedly dropped to 4.3% despite rising labor force participation, while average earnings growth accelerated. However, 2025 payroll data was revised downward, indicating subdued hiring last year.

Market Implications

The robust jobs report suggests the labor market has stabilized into 2026, prompting a major shift in Fed rate cut expectations. Markets now price in only two rate cuts for the year, with the first not fully expected until July—a significant recalibration from earlier forecasts. This gives the Federal Reserve flexibility to focus on its inflation mandate, with inflation still above target. Friday's CPI report becomes the next critical data point.

Fiscal Concerns

The Congressional Budget Office projects the cumulative 10-year deficit will be $1.4 trillion (6%) higher than January 2025 projections. The debt-to-GDP ratio is forecast to exceed its 1946 peak of 106% by 2030, explaining why U.S. Treasury borrowing costs remain elevated—contrary to President Trump's stated preference for the world's lowest rates.

Corporate and Market Developments

European stocks hit new records Thursday despite market volatility. In a landmark deal, U.S. asset manager Nuveen agreed to acquire 222-year-old British firm Schroders for £9.9 billion ($13.5 billion), marking one of Europe's largest fund management acquisitions. The deal reflects rotation into value stocks and relatively cheap UK markets attracting global investors.

China's offshore yuan surged to three-year highs ahead of Lunar New Year holidays.