Markets tread water ahead of US jobs data and tariff ruling

​​​Markets hold back ahead of key catalysts

​Asian equities drifted lower overnight as investors showed little appetite for taking on new risk positions. The United States (US) dollar firmed modestly, benefiting from the general air of caution that has settled over markets.

​Traders are sitting on the sidelines ahead of two events that could trigger significant volatility. The first is the December US jobs report, due later today. The second is a potential Supreme Court ruling on Trump-era tariffs.

​This kind of positioning is entirely rational. When you have two major catalysts looming, there's little point in trying to second-guess the outcome. Better to wait and see what actually happens than to get caught on the wrong side.

​The challenge for markets is that both events carry the potential for surprises. Jobs data can always spring an upset, while a Supreme Court decision on tariffs could go either way and reshape the policy landscape overnight.

​Tariff ruling adds uncertainty to the mix

​The Supreme Court decision on the legality of global tariffs has emerged as an unexpected wildcard for markets. If the court strikes down the tariffs, the consequences could ripple through multiple asset classes.

​Traders are warning that such a ruling could force refunds of up to $150 billion. That's not a trivial sum, and the knock-on effects for Treasury yields and risk sentiment could be significant.

​A favourable ruling for the tariffs would likely be taken as risk-positive, removing a source of uncertainty. But an unfavourable ruling could push Treasury yields higher as the market digests the fiscal implications of large-scale refunds.

​Jobs report unlikely to shift the Fed

​December non-farm payrolls (NFPs) are expected to rise by around 60,000, only marginally below November's 64,000 gain. These numbers reinforce the view that the US labour market is in "no hire, no fire" mode.

​This isn't a strong enough report to push the Federal Reserve (Fed) towards tightening, nor weak enough to trigger alarm bells about recession. It's simply more evidence of a labour market that's cooling but not collapsing.

​The Fed is widely expected to hold interest rates steady this month. Today's jobs data is unlikely to change that view, barring a major surprise in either direction.

​For traders, the key question is what this means for the Fed's path in 2025. The market is pricing in at least two rate cuts this year, even though officials have signalled only one. That disconnect suggests someone is going to be proven wrong.

​Dollar and rates markets price in cuts

​The dollar index is hovering near a one-month high, reflecting both the cautious mood and expectations that the Fed will maintain its restrictive stance for now. But scratch beneath the surface and you find a market that's still betting on rate cuts ahead.

​Traders are pricing at least two Fed rate cuts in 2025, despite the central bank's own guidance pointing to just one. This gap between market expectations and Fed projections has been a recurring theme over the past year.

​Ten-year Treasury yields are sitting around 4.18%, having pulled back from recent highs. The bond market appears to be in a holding pattern, waiting for clearer signals on growth and inflation before making its next move.

​The dollar's strength may prove temporary if the jobs data comes in weak or if the Supreme Court ruling goes against the tariffs. But for now, it's benefiting from its safe-haven status as investors wait for clarity.

​Equities show mixed performance

​Japan's Nikkei 225 jumped 1.5% overnight, boosted by strong results from Fast Retailing. It's a reminder that individual stock stories can still drive performance even when broader sentiment is cautious.

​European futures edged higher in early trading, suggesting a modestly positive open. But the gains are tentative, with traders clearly reluctant to commit capital ahead of the US jobs report.

​Wall Street closed mixed overnight, with technology shares falling while defence stocks hit record highs. The defence sector's strength reflects expectations of higher US military spending, a theme that's likely to persist regardless of the political backdrop.

​The divergence between sectors highlights how selective this market has become. Investors are picking their spots rather than buying the index wholesale, which is often a sign of uncertainty about the broader direction.

​Corporate deals provide distraction

​Rio Tinto and Glencore confirmed they're in preliminary discussions about a possible combination. An all-share merger could create the world's largest mining group with a combined market value of around $207 billion.

​There's no certainty a deal will happen, and Rio has until 5 February 2026 to either announce a firm intention or walk away. But the mere fact of talks adds a corporate catalyst to an otherwise cautious market backdrop.

​In the UK retail sector, Sainsbury's reported like-for-like sales growth of 3.4% in the third quarter (Q3). Grocery sales were particularly strong at 5.4%, helping the supermarket gain market share over the Christmas period.

​The company reiterated guidance for retail underlying operating profit of more than £1 billion and upgraded free cash flow expectations. Plans to return over £800 million to shareholders this year should keep income-focused investors interested, even if the growth story remains modest.