US stocks dropped as investors grappled with continued evidence of strength in the labor market, which could keep the Federal Reserve firmly on its path of rate hikes. Treasury yields rose and the dollar added to gains.
(Bloomberg) — US stocks dropped as investors grappled with continued evidence of strength in the labor market, which could keep the Federal Reserve firmly on its path of rate hikes. Treasury yields rose and the dollar added to gains.
The S&P 500 and the Nasdaq 100 came off session lows after S&P Global’s December US services purchasing managers’ index data added to signs that the economy is cooling. News that Russian President Vladimir Putin ordered a temporary cease-fire in Ukraine over Orthodox Christmas on Friday and Saturday hasn’t seemed to move markets yet.
US stocks started Thursday’s session lower after hiring numbers surpassed estimates in a private payrolls report and new claims for unemployment benefits unexpectedly fell last week. Together, the data suggest resiliency in the labor market that could lead to higher wages and keep the Fed aggressive.
The Fed has indicated that tight labor conditions give it room to keep at its battle against rising prices. At the same time, officials remain concerned that financial conditions could get too loose to effectively crimp economic growth, even after the Fed embarked on the most aggressive tightening campaign in decades.
“We always say don’t fight the Fed when there are easy monetary conditions. We have to follow that sage advice when there are tightening financial conditions,” Kristen Bitterly of Citigroup Global Markets Inc. said on Bloomberg Television. “All this data we are getting is telling us that they are going to continue on this tightening path.”
Atlanta Fed President Raphael Bostic also bruised sentiment on Thursday after he said the central bank still has “much work to do” to tame inflation. He adds to a chorus of hawkish Fed officials this week. Minneapolis Fed President Neel Kashkari said Wednesday he expects rates to rise as high as 5.4%, while Kansas City Fed’s Esther George said she favors a rise above 5%.
Swap rates linked to individual Fed decisions jumped and now suggest a peak in the overnight effective rate of close to 5.05% in the middle of 2023. The current target range for the Fed is 4.25% to 4.5% and there are around 38 basis points of hikes priced in for the next gathering in February.
Read More: Treasury Yields Surge as Strong Jobs Data Bolster Fed Hike Bets
In company news, Bed Bath & Beyond Inc. sank after warning it might not be able to continue as a going concern. Silvergate Capital Corp. plunged after the bank said the crypto industry’s meltdown triggered a run on deposits. Amazon.com Inc. fell, after briefly rising on news that it is laying off more than 18,000 employees, the biggest reduction in its history.
Key events this week:
- Eurozone retail sales, CPI, consumer confidence, Friday
- Germany factory orders, Friday
- US nonfarm payrolls, factory orders, durable goods, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1% as of 10:31 a.m. New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 0.9%
- The Stoxx Europe 600 was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.7% to $1.0527
- The British pound fell 1.3% to $1.1900
- The Japanese yen fell 1% to 133.94 per dollar
Cryptocurrencies
- Bitcoin rose 0.1% to $16,843.79
- Ether fell 0.2% to $1,249.69
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 3.76%
- Germany’s 10-year yield advanced six basis points to 2.33%
- Britain’s 10-year yield advanced seven basis points to 3.56%
Commodities
- West Texas Intermediate crude rose 0.4% to $73.15 a barrel
- Gold futures fell 1.2% to $1,835.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and Namitha Jagadeesh.
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