Morning wrap (04.12.2025)

• Fresh evidence of cooling in the U.S. labor market, reflected in both the soft ADP employment print and the decline in the employment component of the ISM Services survey, triggered a notable shift in market expectations yesterday. Investors increasingly believe the Federal Reserve may move forward with a rate cut at its final meeting of 2025, a pivot that supported equities while putting clear downward pressure on Treasury yields and the dollar.
• The November payrolls figure surprised to the downside, marking the sharpest monthly contraction since early 2023 and reinforcing concerns that the labor market is losing momentum. The ISM services index showed a slight pickup in activity, but the prices-paid subindex fell to a seven-month low, suggesting inflation pressures continue to ease beneath the surface. Markets will turn their attention today to U.S. jobless claims due at 1:30 PM GMT, which could add further clarity on labor market dynamics.
• Although several megacap names underperformed, overall market breadth improved meaningfully, with more than 350 S&P 500 constituents ending the session higher. The S&P 500 closed at 6,850, its seventh advance in the past eight sessions. Futures on major U.S. indices are trading essentially flat this morning. In FX, EURUSD is down roughly 0.15 percent, while Bitcoin remains near the 93,000 level.
• In the semiconductor space, Nvidia’s CEO Jensen Huang voiced skepticism that China would accept the company’s H200 chips even if the U.S. relaxes current export controls, underscoring the persistent geopolitical headwinds weighing on the sector. Microsoft shares briefly dipped on reports of softer demand for selected AI products, though the stock recovered after management reaffirmed that broader AI revenue targets remain intact.
• Treasury markets saw a pronounced rally across the curve, pushing the two-year yield below 3.5 percent and contributing to the dollar’s weakest session since September.
• Asian markets took their lead from the softer U.S. data. Japan outperformed sharply, with both the Topix and Nikkei 225 gaining more than 1.5 percent as investors priced in a higher probability of a Fed rate cut next week. Demand for long-dated Japanese government bonds was particularly strong. A 30-year JGB auction drew the highest bid-to-cover ratio since 2019, extending the positive tone following a well-received 10-year sale earlier this week.
• The strength in JGB demand helped temper market anxiety created by ongoing fiscal concerns and speculation that the Bank of Japan could raise rates at its December 19 policy meeting.
• Across the region, MSCI’s Asia-Pacific equity index advanced 0.5 percent. South Korea and Taiwan, however, slipped modestly, ending a two-day run of gains. Meanwhile, the Dollar Index steadied after its sharp drop on Wednesday, while U.S. Treasury yields continue to drift lower.
• Natural gas futures are trading at their highest levels since December 2022. Brent crude is holding around $63 per barrel, while gold is down more than 0.3%. Profit-taking is also weighing on copper, which is slipping from its record high of $11,530 to $11,450 per tonne. Cocoa is posting only a slight gain, trading near $5,500 per tonne, while coffee is hovering around $372.
• Donald Trump aides to meet with top Ukrainian negotiator Thursday in Miami Florida, for more Russia-Ukraine peace talks according to AP.Trump commented that: 'Putin wants to end the war (..) It takes two to tango (...) I can't say what comes out of the Witkoff-Putin meeting. Witkoff had a reasonably good meeting with Putin. We'll see what happens.'

(Morning wrap in edition)