Stocks slumped and bond yields jumped after a solid jobs report added to concern the Federal Reserve’s policy will remain tighter for longer.
(Bloomberg) — Stocks slumped and bond yields jumped after a solid jobs report added to concern the Federal Reserve’s policy will remain tighter for longer.
The S&P 500 almost wiped out this week’s gains. Two-year US yields — which are more sensitive to imminent Fed moves — approached 4.4%. The dollar halted a three-day slide that drove it to the lowest since June.
Overnight-index swaps linked to Fed meetings showed the outlook for where the central bank’s target will top out climbing to 4.97%, up more than 10 basis points from where it was before the jobs data. The current benchmark sits in a range between 3.75% and 4%.
Comments:
- Seema Shah at Principal Asset Management:
The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates. What is there in this jobs report to convince them not to take policy rates above 5%?
- Callie Cox at eToro:
A strong job market gives the Fed more basis to hold rates higher for longer, even if they start slowing hikes down. A high-rate environment is a challenging one to invest in, and we could be in for a tougher slog to the highs until inflation comes down significantly.
- Ronald Temple at Lazard Asset Management:
Investors need to reassess their optimism regarding the end of policy tightening – both the level of terminal rates, and how long the Fed keeps rates there.
- Cliff Hodge at Cornerstone Wealth:
The November jobs report provides another dose of reality for the markets which have gotten ahead of themselves on another Fed pivot narrative.
- Chris Zaccarelli at Independent Advisor Alliance:
This jobs report is another example of why the Fed is going to be fighting inflation for a much longer period than many currently expect. Next year is likely to be a volatile one as a weakening economy and tight financial conditions is our base case.
- Krishna Guha at Evercore ISI:
We are confident that the report will have no effect on the decision to slow the pace of Fed rate hikes to 50bp in Dec. But it means the median Fed official will likely write down a peak rate of 5% to 5.25% rather than 4.75% to 5% and the Fed will maintain a hawkish tone at that meeting.
- Hussain Mehdi at HSBC Asset Management:
Good news on payrolls is bad news for markets. With this in mind and amid broader US economic resilience and sticky core inflation, we think speculation of a Fed pause as soon as the January/February meeting is unjustified.
- Charlie Ripley at Allianz Investment Management:
The Fed has made significant steps to slow the economy, but today’s employment report is a sign that they are not out of the woods yet and we expect additional policy tightening measures to continue into next year.
Nonfarm payrolls increased 263,000 last month, topping the median estimates in a Bloomberg survey of economists called for a 200,000 advance in payrolls. The unemployment rate held at 3.7%. Average hourly earnings rose twice as much as forecast.
Fed Chair Jerome Powell said earlier this week that a moderation in demand for labor is needed to bring the jobs market back into balance, and the central bank has only seen “tentative signs” of that so far.
Read: Barkin Sees Long-Term US Labor Constraint Keeping Inflation Heat
Stock investors’ optimism around a cooling labor market and a Fed pivot is overdone, according to Bank of America Corp. strategists, who recommend selling the rally ahead of a likely surge in job losses next year. Their note was published before Friday’s jobs data.
“Bears (like us) worry unemployment in 2023 will be as shocking to Main Street consumer sentiment as inflation in 2022,” strategists led by Michael Hartnett wrote in a note showing that global equity funds just had their biggest weekly outflows in three months. “We’re selling risk rallies from here,” he said, reiterating his preference for bonds over equities in the first half of 2023.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.1% as of 9:54 a.m. New York time
- The Nasdaq 100 fell 1.7%
- The Dow Jones Industrial Average fell 0.8%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.5% to $1.0468
- The British pound fell 0.4% to $1.2203
- The Japanese yen fell 0.2% to 135.57 per dollar
Cryptocurrencies
- Bitcoin fell 0.1% to $16,908.55
- Ether rose 0.2% to $1,279.29
Bonds
- The yield on 10-year Treasuries advanced 10 basis points to 3.60%
- Germany’s 10-year yield advanced four basis points to 1.85%
- Britain’s 10-year yield advanced three basis points to 3.13%
Commodities
- West Texas Intermediate crude rose 0.8% to $81.84 a barrel
- Gold futures fell 1% to $1,796.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher and Isabelle Lee.
More stories like this are available on bloomberg.com
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