A look at the day ahead in European and global markets from

Wayne Cole.

Why bother engineering a soft landing, when you can just

keep flying?

That's the message from the U.S. payrolls report, which is

likely to lift the Atlanta Fed GDP Now estimate from its already

above-trend pace of 2.7%.

With the labour market so resilient and inflation receding

only slowly, markets may be wondering why the Federal Reserve is

easing policy at all. A reading above +0.2% for core consumer

prices on Wednesday could convince futures to start giving up on

even one cut this year.

The Treasury market is clearly fretting that cuts are done

and the next move might be up, especially if President-elect

Donald Trump goes through with universal tariffs, mass migrant

deportations and tax cuts.

China's reveal of a whopping $105 billion trade surplus with

the United States in December only adds ammunition to those

arguing for swingeing tariffs.

Add in an ever-expanding budget deficit and it would be no

surprise to see 10-year Treasury yields test the 5% barrier.

That raises the bar for discounting corporate earnings, just

as the profit season starts with the big banks on Wednesday. It

also makes risk-free debt relatively more attractive compared

with other investments including equities, cash, property and

commodities.

So it's been pretty much a sea of red in Asian stocks so far

on Monday. Japan is on holiday but Nikkei futures are down

around 1.2%. S&P 500 and Nasdaq futures are both down around

0.5%, and European stock futures have lost 0.1% to 0.3%. There's

no trading of cash Treasuries but futures are down 5 ticks or

so.

The ascent of yields is stoking the dollar's bull run and

causing stress across Asia, where central banks have to

routinely intervene to prop up their currencies.

China's central bank is increasingly rummaging through its

policy tool kit to support the yuan, announcing on Monday an

increase in the cap on what local companies can borrow abroad.

If they can borrow the dollars they require, then there is less

need to buy dollars for yuan in the spot market.

Another currency under fire is sterling, which hit a fresh

14-month low at $1.2138 as markets fret about the

Labour government's financial credibility. On a trip to China,

finance minister Rachel Reeves had to reassure the media she

would act to ensure the government's fiscal rules are met.

Oh, and oil is up another 1.5% as investors ponder the full

implications of the latest round of U.S. and UK sanctions on

Russian producers.

This move could really bite since it sanctions another 160

tankers of Russia's shadow fleet, taking the total to 270.

Previous tankers so hit were severely curtailed in where they

could travel and some ended up being scrapped.

Key developments that could influence markets on Monday:

- U.S. Federal budget balance