The Paris Stock Exchange is poised for a modest increase as investors await U.S. employment data, crucial for assessing future Federal Reserve interest rate cuts. With forecasts suggesting a drop in job creation and stable unemployment, market reactions may be tepid. Economic indicators point to declining hiring momentum, and Goldman Sachs warns of a potential stock market correction in 2025. Meanwhile, the euro weakens against the dollar, and oil prices rise amid increased demand.
Market Outlook Ahead of U.S. Employment Data
The Paris Stock Exchange is set to open slightly higher on Friday amidst a cautious sentiment as investors await the latest employment figures from the United States. This report is anticipated to spark discussions regarding the Federal Reserve’s timeline for potential interest rate cuts.
Anticipated Employment Figures and Market Reactions
As of 8:15 AM, the futures contract for the CAC 40 index, which is valid until the end of January, has dropped by 14 points to 7481.5, suggesting a challenging start to the trading session.
The market is predicted to remain subdued as it awaits the release of the Department of Labor’s employment report at 2:30 PM, a data point that could significantly influence the Fed’s future monetary policies.
Economists forecast that approximately 170,000 non-farm payrolls were created in December, a decrease from 227,000 in November, while the unemployment rate is expected to hold steady at 4.2%. Investors are keen to see if these figures validate the recent slowdown in the labor market and support the narrative of further rate cuts by the Fed this year.
Preliminary statistics leading up to the employment report, including ADP and the ’employment’ component of ISM surveys, have indicated a decline in hiring momentum in the U.S.
Bastien Drut, head of strategy and economic studies at CPR AM, notes, “The diminishing tightness in the labor market will inform FOMC members’ considerations for gradually moving towards monetary neutrality, thereby justifying continued rate reductions.”
However, Drut also mentions that with the current halt in disinflation and the unpredictability of the Trump administration’s policies, the Fed is likely to proceed with caution.
Recent events have also made investors hesitant to take risks, particularly in light of Donald Trump’s aggressive trade rhetoric and the increasing yields on British bonds.
Goldman Sachs warns that after a notably strong performance in 2024, especially for U.S. equities, the probability of a stock market correction has risen as we enter 2025. The bank estimates a nearly 30% chance of a decline of at least 10% within three months, and over 20% within the next year, a notable increase from the lower probabilities observed in late 2024.
In terms of weekly performance, the CAC is currently up by more than 2.8%, having registered gains in three out of four trading sessions. Following a national day of mourning for President Jimmy Carter, who passed away last year at the age of 100, Wall Street is expected to open lower on Friday based on index futures activity.
In the bond market, the UK continues to face crisis conditions, with the yield on ten-year Gilts returning to 4.81% after reaching a high of 4.98% yesterday, nearing the critical 5% threshold. The country’s borrowing rate remains at its highest since the 2008 financial crisis.
On the currency front, the euro is depreciating against the dollar, trading below the 1.03 mark. However, it could recover if the U.S. employment figures exceed expectations.
Meanwhile, the oil market is poised for a third consecutive week of gains, bolstered by increasing demand despite concerns about economic slowdown and interest rate fluctuations. Brent crude has risen by 0.7% to nearly $77.5 per barrel, while U.S. light crude (West Texas Intermediate, WTI) is also enjoying gains, nearing $74.5 following a decline in U.S. stock levels announced on Wednesday.