The chaotic week for financial markets is drawing to a close, with risk assets getting bid as regional banks surged and solid jobs figures tempered fears of an economic recession. Treasuries fell.
(Bloomberg) — The chaotic week for financial markets is drawing to a close, with risk assets getting bid as regional banks surged and solid jobs figures tempered fears of an economic recession. Treasuries fell.
A rally in equities halted the S&P 500’s longest losing streak since February. PacWest Bancorp soared as much as 82%, following a rout that saw its shares tumbling to a record low. Western Alliance Bancorp and First Horizon Corp., which were also strongly hit this week, jumped. The KBW Bank Index of financial heavyweights rebounded from its lowest since September 2020.
Wall Street’s favorite volatility gauge, the VIX, snapped a four-day surge to slide below 18. Strong earnings at Apple Inc. lifted the megacap tech space, with the world’s most-valuable company climbing almost 5%.
Read: Jobs Data Lose Oomph When We’re All Watching Banks: Surveillance
US hiring and workers’ pay gains accelerated in April, showing signs of labor-market resilience and inflationary pressures in the face of headwinds.
“For now, this report is another sign that the Fed hasn’t broken the economy yet,” said Callie Cox, a US investment analyst at eToro. “The bears’ best argument is that a recession is around the corner, but it may be hard to make that argument until we see actual evidence in jobs data.”
The figures also increase chances the Federal Reserve will hold rates higher for longer and potentially keep the door open to an 11th straight hike in June.
Rates on swap contracts linked to Fed meetings nudged higher, with instruments for June suggesting that a pause in rate hikes next month is the most likely outcome. They had, earlier this week, been suggesting that a cut was a marginal possibility. Subsequent contracts continued to show bets on easing in the wake of the jobs data, though less than they had before.
Oil recovered in tandem with equities, yet still remains headed for a weekly loss amid a fragile outlook for demand.
More Comments:
- Ronald Temple at Lazard:
“If the Fed was expecting definitive confirmation it’s time to pause, this is not that signal. Today’s report clearly suggests weakening labor markets – most obviously in the downward revisions of prior months data – but from a very strong starting point. All said, 500bps of rate hikes are having an impact, but it’s too early to declare victory over inflation.”
- Gina Bolvin at Bolvin Wealth management Group:
“The dynamic appears to be changing. In the past, we’ve seen a hot jobs report bring the market lower, but now the market is holding on to gains, thinking the glass is half full, a soft landing is possible and a recession is not as imminent.”
- Ellen Zentner at Morgan Stanley:
“We do not believe today’s strong report meets the bar for the Fed to consider rate cuts, but instead supports our expectation for the Fed to pause and to keep rates elevated for some time.”
- Chris Zaccarelli at Independent Advisor Alliance:
“While normally positive news in the jobs market would be great for the markets, given that we are in the middle of an inflationary regime, it only increases the likelihood that the Fed will need to keep rates higher for longer.”
- Seema Shah at Principal Asset Management:
“How can the market be speculating about a potential Fed cut as early as June when the unemployment rate has dropped to 3.4% and average hourly earnings growth is picking up? Markets have been hoping for slower economic data, in the hope that it will give the Fed space to cut rates. Today’s jobs report has delivered the exact opposite.”
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.5% as of 11:27 a.m. New York time
- The Nasdaq 100 rose 1.7%
- The Dow Jones Industrial Average rose 1.3%
- The Stoxx Europe 600 rose 1%
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.1017
- The British pound rose 0.4% to $1.2629
- The Japanese yen fell 0.4% to 134.89 per dollar
Cryptocurrencies
- Bitcoin rose 1.4% to $29,274.64
- Ether rose 3.9% to $1,950.86
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 3.46%
- Germany’s 10-year yield advanced 10 basis points to 2.29%
- Britain’s 10-year yield advanced 13 basis points to 3.78%
Commodities
- West Texas Intermediate crude rose 3.7% to $71.09 a barrel
- Gold futures fell 1.7% to $2,020.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna, Peyton Forte and Ksenia Galouchko.
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