Stocks fell, while Treasury yields spiked to levels last seen in 2007 as strong private hiring data fueled bets the Federal Reserve will have to become more aggressive in its battle against inflation.
(Bloomberg) — Stocks fell, while Treasury yields spiked to levels last seen in 2007 as strong private hiring data fueled bets the Federal Reserve will have to become more aggressive in its battle against inflation.
The S&P 500 slid 0.9% after figures published Thursday by the ADP Research Institute showed US companies added the most jobs in over a year in June, underscoring the ongoing strength of the labor market. Swap contracts linked to future policy decisions almost fully priced in a quarter-point increase by July 26 and some likelihood of an additional hike by year end.
Stocks on the moveincluded Exxon Mobil Corp., which fell after forecasting a $4 billion hit to earnings, and Meta Platforms Inc., which rose after Instagram officially launched an app to rival Twitter.
Treasury yields rose across the curve after the ADP report. The policy sensitive two-year rate climbed above 5% to a 16-year high, while the 10-year rose to 4.04% for the first time since March.
Private payrolls increased 497,000, more than double the median estimate in a Bloomberg survey of economists. Separate data from Challenger, Gray & Christmas Inc. showed the pace of job cuts by US employers slowed in June.
The numbers stunned Wall Street.
“The strength of the US labor market is almost unbelievable and this should further push out any concept of a possible recession in the US,” said Scott Ladner, chief investment officer at Horizon Investments. “But, it should also push out of the market any hopes of a Fed rate cut during 2023.”
The report was “literally off the charts relative to what was expected,” according to Peter Boockvar, chief investment officer of Bleakley Financial Group. “This jobs report squares with nothing in the survey data, nor the claims figures and from what companies themselves have been saying about hiring intentions, especially with the lackluster growth in the economy.”
Stocks have been losing ground after a strong first half of the year as continued hawkishness from central banks dampens hopes of a soft landing for the global economy. Minutes from the Fed’s June meeting showed division among policymakers over the decision to pause rate hikes, with the voting members on track to take rates higher later this month.
Further US employment reports this week may provide clues on the path for policy. Ahead of the closely watched nonfarm payrolls release on Friday, the so-called JOLTS report of job openings is expected to show a tapering of available positions, and a separate measure of jobless claims is anticipated to tick higher.
Meanwhile, Treasury Secretary Janet Yellen touched down in Beijing on Thursday to attempt to further repair the relationship between the world’s two largest economies.
Elsewhere in China, the central bank extended support for the yuan via a stronger daily reference rate. Chinese investors don’t expect policymakers to unveil aggressive stimulus or big economic reforms at a key meeting expected later this month, according to Goldman Sachs Group Inc.
Key Events This Week:
- ISM services, job openings, Thursday
- Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
- US unemployment rate, nonfarm payrolls, Friday
- ECB’s Christine Lagarde addresses an event in France, Friday
Some of the main moves in markets today:
Stocks
- The S&P 500 fell 0.8% as of 9:30 a.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 1.8%
- The MSCI World index fell 1.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0884
- The British pound rose 0.4% to $1.2753
- The Japanese yen rose 0.3% to 144.18 per dollar
Cryptocurrencies
- Bitcoin rose 0.4% to $30,601.63
- Ether fell 0.3% to $1,904.64
Bonds
- The yield on 10-year Treasuries advanced 10 basis points to 4.03%
- Germany’s 10-year yield advanced 12 basis points to 2.60%
- Britain’s 10-year yield advanced 14 basis points to 4.63%
Commodities
- West Texas Intermediate crude fell 0.3% to $71.56 a barrel
- Gold futures fell 0.6% to $1,916.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, John Viljoen, Namitha Jagadeesh and Sagarika Jaisinghani.
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