A look at the day ahead in U.S. and global markets from Mike

Dolan

Another forecast miss from a U.S. megacap combines with caution

ahead of January's employment report to keep a lid on stocks

into Friday's open - with buoyant long-dated Treasuries

squashing the yield curve to its flattest for the year.

Much like Microsoft ( MSFT ) and Alphabet over the

past couple of weeks, Amazon ( AMZN ) disappointed Wall Street

late Thursday as concern about cloud computing doused revenue

and profit forecasts and sent its stock down 4% overnight.

The latest underwhelming outlook from the "Magnificent 7"

top U.S. tech firms reins in an otherwise upbeat S&P500,

with questions about heavy spends on artificial intelligence

piqued again by the development of China's cheap DeepSeek model.

The DeepSeek buzz, by contrast, continues to fire up Chinese

stocks. They added another 1%-plus earlier on Friday

despite ongoing concerns about a mounting Sino-U.S. trade war

and Monday's deadline for Beijing's retaliatory tariffs.

But the day's macro events will likely take precedence, with

the release of the January U.S. employment report and long-term

revisions of past job creation.

Job growth likely slowed to 170,000 in January from just

over quarter of million the prior month, partly restrained by

wild fires in California and cold weather across much of the

country.

Those distortions add a further complication to the readout,

which will include annual benchmark revisions, new population

weights and updates to the seasonal adjustments.

The week's sweep of other labor market reports, however, do

point to some cooling of conditions - with job openings falling,

layoffs rising and weekly jobless claims ticking higher.

With the Federal Reserve already trying to parse the impact

of President Donald Trump's new economic policies, payroll

distortions just cloud the picture even further.

And as Fed officials insist they can wait and see for a bit,

Fed futures remain trained on two more interest rate cuts this

year - resuming about midyear.

The Treasury market is more encouraged though - sustaining

the early week's sharp drop in 10-year yields into

today's jobs report and seeing the 2-to-10 year yield curve

compress to the flattest it's been in six weeks.

Helping the long end this week has been reassuring signals

from the Treasury's quarterly refunding report that a "terming

out" of debt auctions to longer maturities is not yet in the

works, as many had feared.

Treasury Secretary Scott Bessent has also insisted the new

government's focus would be on getting long-term rates down

rather than pressuring the Fed to ease prematurely.

Reuters analysis shows Trump has placed holds on tens of

billions of dollars in congressionally-approved spending for

projects across the U.S. that range from Iowa soybean farmers

adopting greener practices to a Virginia railway expansion.

Bessent also doubled down on his view the administration

wants to retain a "strong dollar" policy. But he colored that

with a sideswipe. "What we don't want is other countries to

weaken their currencies, to manipulate their trade."

But with the Fed on hold, central banks around the world

continued easing interest rates apace this week - partly on

concerns a trade tariff war will weaken their economies.

With a sharp cut in its UK growth forecast, the Bank of

England cut its policy rate by a quarter point on Thursday -

with two of its policymakers voting for a bigger half point

reduction. Sterling weakened initially, but has steadied since.

Mexico's central bank also cut its interest rate by 50 basis

points on Thursday - saying it could cut by a similar magnitude

in the future as inflation cools and after the economy

contracted slightly late last year.

The European Central Bank, meantime, is expected to release

its updated estimate of what it sees as a "neutral" interest

rate later on Friday.

That's important as it informs the ECB debate about whether

it needs to cut rates below what considers neutral to revive the

flagging euro zone economy. It's currently seen around 2% -

75bps below the standing policy rate.

In thrall to the payrolls release, the dollar index

was steady on Friday. Dollar/yen briefly notched a new

low for the year, however, as Bank of Japan tightening

speculation simmers.

In Europe, stocks stalled near record highs as the

heavy earnings season there unfolded.

Banks there have a been a standout winner this week and

again on Friday. Danske Bank ( DNSKF ), Denmark's biggest

lender, was up 7.1% after it posted record annual profits and

launch a new share buyback programme.

Key developments that should provide more direction to U.S.

markets later on Friday:

* U.S. January employment report, University of Michigan

February consumer survey, December consumer credit; Canada Jan

employment report; Mexico Jan inflation

* European Central Bank updates its estimate of "R*" neutral

interest rate

* Federal Reserve Board Governors Michelle Bowman and Adriana

Kugler speak; Bank of England Chief Economist Huw Pill speaks

* U.S. corporate earnings: Cboe Global Markets, Fortive, Kimco

Realty

* Japan Prime Minister Shigeru Ishiba visits United States

(By Mike Dolan, editing by XXXX

[email protected])