Market Beats | US Nonfarm Payrolls Surges in December; 30-Year US Treasury Yield Breaches 5%; Tesla Unveils Facelift Model Y in China; Constellation Acquires Calpine

—— US Nonfarm Payrolls Surges in December; 30-Year US Treasury Yield Breaches 5%; Tesla Unveils Facelift Model Y in China; Constellation Acquires Calpine

1. US Nonfarm Payrolls Surges in December

In December, the US labor market exhibited significant strength, adding more jobs than in any month since March and seeing a surprise drop in the unemployment rate. This robust performance capped a surprisingly strong year for the job market, bolstering arguments for the Federal Reserve to pause its interest rate cuts.

Nonfarm payrolls in December rose by 256,000, surpassing the expectations of nearly all economists surveyed by Bloomberg, except for one. Additionally, the unemployment rate declined to 4.1%, and average hourly earnings increased by 0.3% from November, according to a report from the Bureau of Labor Statistics.

These figures underscore the resilience of the labor market throughout the year, despite challenges such as high borrowing costs, persistent inflation, and political uncertainty. Although the pace of job growth moderated compared to the previous year and the unemployment rate saw a general upward trend in 2024, the economy still managed to add 2.2 million jobs.

This total, while lower than the 3 million jobs added in 2023, was still higher than the 2 million jobs created in 2019. This sustained job creation suggests underlying strength in the labor market, providing substantial support for maintaining current monetary policy settings.

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2. 30-Year US Treasury Yield Breaches 5%

U.S. Treasuries experienced a significant drop as robust labor market data led traders to adjust their expectations for the Federal Reserve’s next interest rate cut to later in the year.

This reassessment triggered a sell-off in Treasuries, driving yields higher across various maturities on Friday. This movement occurred after the December employment report showed the largest job gains in nine months, pushing the yield on the 30-year bond above 5% for the first time in over a year. Similarly, yields on the 10-year notes climbed to their highest level since 2023, with yields on notes maturing between two and seven years all increasing by more than 10 basis points.

Zachary Griffiths, the head of investment-grade and macroeconomic strategy at CreditSights, commented on the situation, saying, “Looks like a really strong report across the board, pushing yields higher and the curve flatter.” He noted that the strong employment data was prompting a significant adjustment in the short-term expectations for the Federal Reserve, leading to a “more conventional bear flattener” in bond markets.

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3. Tesla Unveils Facelift Model Y in China

Tesla’s update to the Model Y seems to be both a strategic and aesthetic move, introducing features reminiscent of the Cybertruck to this mainstream model. This refresh could be seen as an attempt to rejuvenate interest in their vehicle lineup after experiencing a dip in global deliveries, which might also help Tesla maintain its competitive edge in the electric vehicle market, especially against significant players like China’s BYD Co.

The addition of a Cybertruck-style LED light strip and slight improvements in range are interesting touches. Since the Model Y has been relatively unchanged for five years, these updates might invigorate sales and appeal to both existing Tesla fans and potential new customers looking for the latest in EV technology.

It’s also strategically priced, making it accessible while offering significant range, which is a crucial factor for many buyers in the electric vehicle market.

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4. Constellation Acquires Calpine

Constellation Energy Corp.’s acquisition of Calpine Corp. is a significant move in the energy sector, particularly because it creates the largest fleet of power stations in the U.S. The surge in Constellation’s stock following the announcement reflects strong market approval and optimism about the company’s future growth. This deal, valued at $16.4 billion including the assumption of debt, highlights the increasing consolidation in the power industry as companies adapt to the rapidly growing demand for energy.

The forecasted growth in U.S. energy consumption is driven by several modern technological and economic developments, including the expansion of data centers, new manufacturing facilities, and the ongoing shift toward electric vehicles—all of which require substantial electrical power. This acquisition positions Constellation to capitalize on these trends, potentially enhancing its profitability and market dominance. Additionally, this deal offers substantial returns for Calpine’s private shareholders, marking a successful exit from their 2018 private acquisition.

This strategic move by Constellation could reshape the competitive landscape of the U.S. power market, setting a new benchmark for operational scale and financial might in the sector.

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5. Micron Spends $7bn to Build Singapore Factory

Micron Technology Inc. has announced a substantial $7 billion investment to expand its manufacturing operations in Singapore, driven by the rising demand for advanced memory chips from the burgeoning artificial intelligence sector.

The American company initiated construction of a new facility in Singapore on Wednesday, which is projected to begin operations by 2026. This plant will focus on packaging high-bandwidth memory chips, which are essential for AI data centers, and is expected to generate approximately 1,400 jobs.

This expansion is part of a broader strategy by Micron and other tech companies to diversify their manufacturing bases across Southeast Asia, moving some of their focus away from China and Taiwan. This shift is largely motivated by ongoing tensions between Washington and Beijing. In a similar vein, NXP Semiconductors NV and a company affiliated with Taiwan Semiconductor Manufacturing Co. are also investing in the region, with plans to construct a $7.8 billion wafer plant in Singapore.

Micron emphasized that the new facility would bolster Singapore’s semiconductor ecosystem and spur further innovation. Additionally, the company highlighted that its future growth plans in Singapore would support long-term production needs for NAND technology, which is critical for storing data in devices ranging from data-center computers to smartphones.

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6. BlackRock to Cut 1% of Workforce

The luxury sector’s challenging 2024 can be attributed to a combination of factors. A significant downturn in Chinese consumer spending, which has been a cornerstone of the market, coupled with backlash against steep price hikes by luxury brands, played key roles in the downturn experienced by industry giants like LVMH. This environment is further complicated by geopolitical factors such as the potential escalation of trade wars under Donald Trump’s administration, which could introduce higher tariffs and further strain the luxury market.

The suggestion to pivot towards the “silver generation” — consumers over the age of 50 — represents a strategic shift for luxury brands. Traditionally focused on younger demographics, the industry may need to reconsider its target audience to maintain growth and stability. This demographic is often more financially stable and less prone to economic fluctuations than younger consumers, which makes them a reliable customer base during economic downturns.

Engaging this older demographic could involve tailored marketing strategies, product lines that appeal more directly to their preferences and lifestyles, and perhaps a shift in service models to cater to their distinct tastes and expectations. This shift could help stabilize the market and open new avenues for growth, mitigating some of the risks associated with trade policies and global economic volatility.

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7. US Consumer Debt Surprisingly Drops

In November, US consumer debt outstanding saw an unexpected decrease, marking the largest drop in over a year, with a significant reduction in credit card balances.

According to Federal Reserve data released on Wednesday, total consumer credit fell by $7.5 billion, a stark contrast to the $17.3 billion increase in October and contrary to economists’ expectations of a $10.5 billion rise as per a Bloomberg survey. This decrease in credit balances isn’t adjusted for inflation.

Specifically, credit card and other revolving debts saw a reduction of $13.7 billion, the most significant decline since the early months of the pandemic, following a substantial increase the previous month. However, non-revolving credit, which includes loans for vehicle purchases and school tuition, went up by $6.2 billion.

The data indicates that consumers are making concerted efforts to reduce their credit card debt, especially as borrowing rates remain high, well over 20%. This comes at a time when Americans have increasingly relied on credit to sustain spending amid ongoing inflation.

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