On January 10, 2024, at 21:30 Beijing time, the United States will publish the non-farm employment data for December 2024.

Key Observations:
In December, the U.Switnessed an increase in non-farm employment and a decline in the unemployment rateThe performance in the job sector significantly exceeded market expectations and seasonal patterns, pointing toward the resilience of the U.S

economyFollowing the data announcement, the Federal Reserve's expectations for interest rate cuts were markedly reduced, with the market predicting only one rate cut in 2025, potentially as early as JuneOur annual report maintains that a core variable for overseas markets in 2025 will be the anticipated rebound in the global economy, which is expected to drive risk assets' performance over safer assets.

1. In December, the U.Sadded 256,000 non-farm jobs, exceeding the expected 160,000 and the previous month's 212,000, marking the highest figure since April 2024, despite a downward revision of 8,000 jobs for the previous two monthsThe unemployment rate stood at 4.1%, below the anticipated and previous rates of 4.2%. Average hourly earnings increased by 0.3% month-over-month, meeting expectations and mirroring the average for the past 12 months, albeit slightly lower than the prior month's 0.4%. The "Sam Rule" has remained below 0.5% for three consecutive months, indicating a significant reduction in recession risks.

2. Historically, due to holidays and weather influences, job additions in December often hit a yearly low, which is a primary reason for the low market expectations

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However, this month’s unexpected rebound in the job market significantly outperformed seasonal patterns; this is attributed partly to the re-engagement of temporary workers who were previously laid off due to hurricanes and strikes, but it also underscores the robustness of the U.Seconomy.

3. Following the employment report, U.Sstocks fell while the dollar and Treasury yields rose, indicating a notable adjustment in the Fed’s rate cut expectationsThe implied annual rate cut expectation dropped from 1.7 to 1.1, reflecting current market sentiment that anticipates the Fed will only implement one rate cut in 2025, potentially starting in June.

4. We previously indicated in our annual overseas outlook that three main themes would characterize the overseas market in 2025: economic recovery, secondary inflation, and policy dynamics, with economic recovery being the most crucial variable

In this context, risk assets such as overseas stocks and commodities are likely to outperform safe-haven assets like bonds and goldAlthough tightening monetary policy and rising U.STreasury yields may pressure equities, given the positive economic expectations, any corrections in the stock market are anticipated to be modest, without the foundation for sustained downturnsMeanwhile, cyclical commodities like crude oil and base metals are expected to benefit from improved economic expectations and secondary inflation forecasts, showing resilience against liquidity concerns and anticipated to maintain a positive trajectory moving forward.

The details are as follows:
1 In December, the U.S

labor market continued to show strength, with a significant uplift in job additions and a decrease in the unemployment rate, exceeding expectations considerably.

> Overall Employment Performance: In December, the U.Sadded 256,000 non-farm jobs, surpassing the expected 160,000, marking the highest growth since April 2024. Data from November was revised down from 227,000 to 212,000, while October’s figures were adjusted from 36,000 upward to 43,000, resulting in a combined downward revision of 8,000 jobsThe unemployment rate fell to 4.1%, lower than the expected and prior 4.2%. The labor force participation rate was maintained at 62.5%, consistent with prior expectationsThe average weekly hours remained steady at 34.3, aligning with expectationsAverage hourly earnings rose by 0.3%, matching expectations and in line with the past year's average but slightly below the previous month's 0.4%. Notably, the "Sam Rule" has been below 0.5% for three months, indicating a substantial reduction in recession risks.

> Sector Employment Performance: In December, the mining, information technology, construction, and other services sectors witnessed an uptick in unemployment rates exceeding 0.5 percentage points, indicating the most significant employment deterioration

In contrast, the leisure and hospitality sectors showed the most improvement with a decrease in their unemployment rates by more than 0.5 percentage points.

> Employment Data Analysis: Traditionally, due to holiday impacts and weather factors, December’s non-farm job additions typically reflect a yearly low, contributing to conservative market expectationsHowever, this month's stronger-than-expected job additions illustrate a significant rebound, influenced partly by the reintegration of temporarily laid-off workers impacted by earlier hurricanes and strikes, but also reflecting the ongoing strength of the U.Seconomy.

2 Following the non-farm report, the US stock market fell while bond yields rose, shifting Fed rate cut expectations significantly

> Asset Class Performance: Upon the release of the non-farm employment data, U.Sstocks experienced a drop while the dollar and treasury yields increased, with gold initially falling before recoveringAs of January 11, the S&P 500, Nasdaq, and Dow Jones indices recorded declines of 1.5%, 1.6%, and 1.6% respectivelyThe 10-year U.STreasury yield rose by 7.4 basis points, reaching 4.76%, while the dollar index appreciated by 0.4% to 109.7. Spot gold settled at $2689.8 per ounce, marking a 0.8% increase.

> Changes in Rate Cut Expectations: Post-report, the implied expectations for rate cuts by the Fed significantly diminishedThe anticipated rate cut frequency for the year dropped from 1.7 to 1.1, solidifying the market's belief that only one rate cut may occur in 2025, potentially starting as early as June.

3 Further Insights: The outlook for 2025 suggests a recovery in global markets, with risk assets likely outperforming safer investments.

> Global Macro Environment: Past reports have indicated that both the U.S

and European economies are expected to rebound in 2025, based on the core logic of “loose monetary policy” and “loose credit” combined with “balance sheet recovery.” As the economy improves, inflationary pressures may complicate the Fed's room for maneuverWe maintain the prediction of two rate cuts over the year, with stable rates expected in January, while the potential for cuts in March will depend heavily on forthcoming data.

> Market Trends: Our yearly outlook highlights three primary themes for overseas markets in 2025: economic rebound, secondary inflation, and policy shifts, with economic recovery being the pivotal aspect determining overall asset pricing trendsIn this environment, risk assets such as stocks and commodities are likely to outperform more secure assets like bonds and gold

Even if monetary easing is less aggressive and treasury yields soar, the backdrop of positive economic forecasts suggests U.Sstocks are unlikely to see major declinesMoreover, cyclical commodities should benefit from expectations of economic improvement and secondary inflation while being less impacted by liquidity conditions, which indicates a positive performance potential ahead.

Risk Warning: Potential risks include unpredictability regarding the U.Seconomy, inflation dynamics, Fed monetary policy, and geopolitical tensions.