Stocks fluctuated and bonds fell, with traders awaiting a reading on the US labor market for clues on whether the Federal Reserve is approaching the end of its aggressive rate-hiking campaign.
(Bloomberg) — Stocks fluctuated and bonds fell, with traders awaiting a reading on the US labor market for clues on whether the Federal Reserve is approaching the end of its aggressive rate-hiking campaign.
The S&P 500 was little changed. Treasury two-year yields, which are more sensitive to imminent Fed moves, topped 4%. The dollar wavered, while Bitcoin trended toward the high end of its recent range of around $28,000. Oil built on the largest gain in a year after OPEC+ set out to punish short sellers with a surprise production cut.
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The Job Openings and Labor Turnover Survey, or JOLTS, is expected to show softening for a second straight month after December’s surprise surge. Even with another expected drop, the ratio of job openings to unemployed workers — a key gauge of labor-market tightness for the Fed — will possibly remain too high for policymakers’ comfort, said Anna Wong at Bloomberg Economics.
Traders are overcoming their initial bearish reaction to the oil cartel’s plan and are now betting that the impact of higher crude prices on economic recovery won’t allow the Fed to speed up the pace of rate hikes. The Reserve Bank of Australia’s pause in its tightening cycle and a decline in European consumer inflation expectations have emboldened markets to forecast more than 50 basis points of Fed rate cuts later this year.
Swap Market
Swap traders for their part are leaning in hard with wagers that after one more hike to a peak of around 4.99% in May, the Fed will slash the funds rate to about 4.31% by year end. That’s well below the median forecast from US officials of 5.1%, according to the latest “dot plot” of quarterly economic projections.
“The focus has now shifted back to the growth outlook and inflation in the US and around the world,” said Brad Bechtel, global head of foreign exchange at Jefferies. “The question once again focusing on will ‘they’ or won’t ‘they’ need to hike again and if so how much? And then, once again on will ‘they’ have the resolve to keep the overnight rate elevated throughout the duration of this year or will they be forced to cut sooner.”
Fed Governor Lisa Cook said that given the strength of the labor market, “we are still going to see inflation from that, but we’ve seen wage gains moderating quite a bit,” she said. That suggests the “disinflationary process” is underway, but “we’re not there yet.”
A risk-on mood fueling this year’s equities rally is likely to falter, with headwinds from bank turbulence, an oil shock and slowing growth poised to send stocks back toward their 2022 lows, according to JPMorgan strategist Marko Kolanovic.
“The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally,” Kolanovic wrote in a note to clients Monday. “We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months.”
A drop in the VIX below 20, a level associated with less stressful periods, suggests investors believe the banking crisis is contained in the near term. However, Kolanovic characterizes the present market backdrop as “the calm before the storm.”
Key events this week:
- Eurozone S&P Global Eurozone Services PMI, Wednesday
- US trade, Wednesday
- UBS annual general meeting, Wednesday
- US initial jobless claims, Thursday
- St. Louis Fed President James Bullard speaks, Thursday
- US unemployment, nonfarm payrolls, Friday
- Good Friday. US stock markets closed, bond markets close for part of the day
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 9:40 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0902
- The British pound rose 0.5% to $1.2482
- The Japanese yen fell 0.2% to 132.66 per dollar
Cryptocurrencies
- Bitcoin rose 2.5% to $28,279.93
- Ether rose 5.4% to $1,876.38
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.47%
- Germany’s 10-year yield advanced eight basis points to 2.34%
- Britain’s 10-year yield advanced eight basis points to 3.51%
Commodities
- West Texas Intermediate crude rose 1.2% to $81.39 a barrel
- Gold futures rose 0.3% to $2,005.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Srinivasan Sivabalan, Vildana Hajric, Angel Adegbesan and Carly Wanna.
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