Capital Idea: Market wrap, 9th January

• Wall Street closes flat but with significant churn below the surface

• US jobless claims point to a resilient labour market ahead of NFPs

• Commodity prices swing on geopolitical risks and rebalancing flows

Wall Street was unchanged on the day but that belied a lot of movement below the surface. At a macro level, there’s no clear directional bias in the markets heading into US Non-Farm Payrolls data. Drilling deeper into the price action and there appears to be a rotation going on between large-cap and tech stocks in particular, towards cyclicals with a slight skew to small caps – the NASDAQ was down while the Dow and Russell were higher.

Tonight’s Non-Farm Payrolls data is the first clean and complete batch of official US jobs figures since the beginning of the US government shutdown last year. It’s expected to show a lukewarm labour market, with the unemployment rate moderating to 4.5% off the back of roughly 65,000 jobs created last month. All the data right now is about what capacity the Fed will have to continue lowering interest rates this year and, more pertinently, when it will do so. The markets are pricing in that the Fed will pause for a few meetings before delivering another couple of cuts in 2026. Jobless claims figures overnight suggested there’s little pressure for the Fed to rush to cut further, with the number of Americans seeking benefits rising by less than expected and remaining around the low 200,000 mark.

Further volatility in the commodities space may speak to some technical drivers of volatility. Much of the commodity complex has been driven by geopolitical risk this week amid the fallout from the US invasion of Venezuela and capture of its now former President. Oil prices popped last night, as markets balance the supply and demand impacts of Venezuela being re-integrated back into global energy markets. However, flows might be at play here too. Index and ETF rebalancing is taking place now, possibly creating or compounding existing volatility as fund managers sell the proverbial winners and buy the proverbial losers in the commodity markets.

A little grey swan in the markets today may come from the US judiciary. The Supreme Court may rule on the legality of some of Trump’s tariffs and whether the President has the legal authority to levy them. If they do get slapped down, it would be a boon to the outlook for the US economy and company profits. A potential drawback is how it would impact the Treasury market, long-term yields and, as a result, valuations, given, all else equal, it would eliminate significant tax revenue and worsen the US fiscal position.