US stocks remained lower and Treasury yields stayed elevated after data signaled continued resilience in the labor market, which could keep pressure on the Federal Reserve to stay the course with its rate hikes.
(Bloomberg) — US stocks remained lower and Treasury yields stayed elevated after data signaled continued resilience in the labor market, which could keep pressure on the Federal Reserve to stay the course with its rate hikes.
The S&P 500 and the Nasdaq 100 fell after applications for US unemployment benefits eased last week. Among individual movers, Silvergate Capital Corp. plunged to a record low as after it said it was reviewing whether it can remain viable. Tesla Inc. sank after it shared scant details about its next-generation models during its investor day.
Treasuries dropped as data showed unit labor costs rising. Two-year, 10-year and 30-year Treasury yields stayed above the 4% level, a sign that Fed warnings for higher-for-longer rates are finally sinking in. A dollar index rose.
The focus now is on how much higher interest rates might go in the US and Europe, with swaps markets now pricing a peak Fed policy rate of 5.5% in September, and some even betting that the benchmark interest rate could rise to 6%.
“Markets are now appropriately pricing in higher inflation and the impact higher interest rates will have on the economy,” said David Spika, president and chief investment officer of GuideStone Capital Management. “So what we saw in January and really going back to October was the markets were incorrectly interpreting a pivot, lower inflation, the Fed was going to stop raising rates, a soft landing — all of that was misguided and now the market is accurately pricing in, alright, the Fed is going to have to keep raising rates.”
But investors should expect data to continue to be mixed even as inflation comes down, according to Chris Harvey, Wells Fargo’s head of equity strategy.
“We’re in a good situation where the economy has not cracked,” he said on Bloomberg Television. “Ultimately we are going to get to a lower level of inflation, but 2% I think is more aspirational than anything else.”
Sarah Hunt of Alpine Woods Capital Investors also said that some of the impact of the Fed’s persistent rate hikes may not be seen just yet.
“I do think that there are parts of the economy for which those changes don’t happen so quickly,” she said on Bloomberg Television. “Wall Street is so used to focusing on the quarters that we lose sight of the fact that wage negotiations don’t happen every time the Fed changes rates, it happens once a year or once every couple of years depending on the industry.”
Meanwhile, data on Thursday also showed euro-area inflation slowed by less than anticipated and underlying price pressures surged to a new record, heaping pressure on the European Central Bank to drive up rates further. ECB interest rates are now seen rising above 4% and German benchmark bond yields traded above 2.7%.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2% as of 10:29 a.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average rose 0.4%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.6% to $1.0604
- The British pound fell 0.7% to $1.1942
- The Japanese yen fell 0.3% to 136.66 per dollar
Cryptocurrencies
- Bitcoin fell 0.9% to $23,339.97
- Ether fell 1.8% to $1,628.39
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 4.07%
- Germany’s 10-year yield advanced three basis points to 2.75%
- Britain’s 10-year yield advanced five basis points to 3.88%
Commodities
- West Texas Intermediate crude rose 0.7% to $78.21 a barrel
- Gold futures fell 0.2% to $1,841.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher and Sujata Rao.
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