Stocks and bonds saw their gains sputter after data showing a solid US labor market bolstered speculation that Federal Reserve policy could remain aggressively tight even with the threat of an economic recession.
(Bloomberg) — Stocks and bonds saw their gains sputter after data showing a solid US labor market bolstered speculation that Federal Reserve policy could remain aggressively tight even with the threat of an economic recession.
At a time when good news is considered bad news when it comes to policy conjectures, the S&P 500 fell on figures highlighting an unexpected rebound in US job openings, which may fuel wage gains and keep the pressure on the Fed. The report precedes Friday’s jobs print. Treasury 10-year yields edged higher after plunging as much as 13 basis points earlier Tuesday.
“Hopes for a Fed dovish pivot are misplaced if today’s job openings are any guide,” said Ronald Temple, head of US equity at Lazard Asset Management. “Despite other signs of economic deceleration, the job openings data taken together with nonfarm payroll growth indicate the Fed is far from the point where it can declare victory over inflation and lift its foot off the economic brake.”
Temple also noted that markets “may be underestimating where the Fed’s terminal rate is, and should prepare for further financial tightening.”
Also weighing on market sentiment was a separate report showing US manufacturing neared stagnation in October as orders contracted for the fourth time in five months, while an index of prices paid fell to a more than two-year low. The figures added to evidence of growing global recession concerns as central banks step up the fight to get inflation under control.
To Matt Maley at Miller Tabak + Co., a lot of what will take place in markets over the next few weeks will hinge upon Powell’s signals on Wednesday as well as the subsequent Fedspeak. He noted that a throttling back of the size of hikes “is not something that can be considered a ‘pause’… much less a ‘pivot’.”
“We believe that they merely want to do what they were always going to do: turn the rate hikes into smaller ones,” Maley added. “However, that does not mean they’ll be overly dovish in their rhetoric.”
Earlier in the day, speculation that China is preparing to gradually exit the stringent Covid Zero stance helped boost equities. A gauge of the nation’s stocks listed in Hong Kong surged almost 7% intraday. Shares pared gains after Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of a committee on ending the policy.
In corporate news, Uber Technologies Inc. posted revenue that beat expectations as gains in ridership assuaged investor concerns that rising inflation would damp consumer spending. Pfizer Inc. increased its forecast for adjusted earnings for the year as sales of its Covid-19 vaccine were stronger than expected. Eli Lilly & Co. cut its 2022 profit outlook due to the stronger US dollar and one-time charges.
Key events this week:
- EIA crude oil inventory report, Wednesday
- Federal Reserve rate decision, Wednesday
- US MBA mortgage applications, ADP employment, Wednesday
- Bank of England rate decision, Thursday
- US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
- ECB President Christine Lagarde speaks, Thursday
- US nonfarm payrolls, unemployment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 11:26 a.m. New York time
- The Nasdaq 100 fell 0.6%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $0.9875
- The British pound was little changed at $1.1468
- The Japanese yen rose 0.3% to 148.20 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $20,442.68
- Ether rose 0.5% to $1,572.98
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.06%
- Germany’s 10-year yield was little changed at 2.15%
- Britain’s 10-year yield declined one basis point to 3.51%
Commodities
- West Texas Intermediate crude rose 2.3% to $88.55 a barrel
- Gold futures rose 0.4% to $1,647.20 an ounce
–With assistance from Vildana Hajric.
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