Strong non-farm payrolls shatter the market's dream of interest rate cuts, "the anchor of global asset pricing" aims for 5%

According to the Zhitong Finance APP, the strong non-farm payroll report from the United States has reinforced expectations that interest rates will remain high for a longer period and increased the likelihood of the "anchor of global asset pricing," the 10-year U.S. Treasury yield, reaching 5%, putting pressure on the broader market. Data shows that the U.S. added 256,000 jobs in December, far exceeding economists' expectations, while the unemployment rate declined. This news shattered investors' hopes for a decline in U.S. Treasury yields. Since the beginning of the year, the significant rise in U.S. Treasury yields has kept the stock market on edge. This data has also reignited concerns about inflation, which remains stubbornly above the Federal Reserve's 2% target. Felipe Villarroel, partner and portfolio manager at TwentyFour Asset Management, stated, "This report is clearly unfavorable for inflation. The economy is certainly not slowing down." Traders now expect the Federal Reserve to wait until at least June to lower policy rates. Before the employment data was released, they had bet that the Fed would cut rates as early as May, with a roughly 50% chance of another cut by the end of the year. Bank of America has a pessimistic forecast that the Fed's rate-cutting cycle may end, and there could even be rate hikes ahead. In contrast to price trends, long-term U.S. Treasury yields surged to their highest level since November 2023, with the 10-year yield reaching a peak of 4.79%. Bond investors are concerned about the outlook, as the fiscal and trade policies of the incoming Donald Trump administration could lead to an increase in U.S. Treasury issuance and a rebound in inflation. Before the employment report was released, a client survey by BMO Capital Markets showed that 69% of respondents expected the 10-year U.S. Treasury yield to test 5% at some point this year. Next week, economic data such as the U.S. Producer Price Index and Consumer Price Index for December will be released, which could be key factors in determining the direction of yields. In recent weeks, the yield curve for U.S. 2-year and 10-year Treasury bonds has steepened, as the yield on 10-year bonds has been rising while short-term bond yields have remained stable, indicating that the market expects rates to remain high due to the economy's continued resilience. The rise in U.S. Treasury yields may tighten financial conditions, increasing borrowing costs for businesses and individuals, thereby dampening investor interest in the stock market and other high-risk assets. BNY Mellon stated that higher yields can also enhance the attractiveness of bonds relative to stocks, noting that "a 5% yield is still seen as a trigger point for asset allocation changes." By the end of 2023, the benchmark 10-year U.S. Treasury yield reached 5% for the first time since 2007, causing the stock market to drop. This week, the U.S. stock market fell sharply as optimistic economic data pushed yields higher. The S&P 500 index fell 1.5% on Friday, erasing gains made so far this year. Sam Stovall, chief investment strategist at CFRA Research, stated after the employment data was released, "The U.S. 10-year Treasury yield will remain above 4% this year, so the stock market may face considerable challenges. The start of this year has been poor."