Wall Street saw a renewed flight-to-safety bid, with bonds rallying and stocks dropping after weaker-than-estimated economic data revived concern the US is heading toward a recession amid the Federal Reserve’s aggressive tightening stance.
(Bloomberg) — Wall Street saw a renewed flight-to-safety bid, with bonds rallying and stocks dropping after weaker-than-estimated economic data revived concern the US is heading toward a recession amid the Federal Reserve’s aggressive tightening stance.
Two-year yields sank as much as 18 basis points to 3.64%. The dollar rose against most developed currencies except the Japanese yen and the Swiss franc. Financial companies came under pressure after Western Alliance Bancorp updated its financial disclosures without saying more about its deposit balance. The Nasdaq 100 underperformed major equity benchmarks amid a rout in chipmakers.
The US service sector expanded in March at a much slower pace than projected on considerably weaker new orders growth and softer business activity. Companies added fewer jobs than forecast while wage growth slowed, underscoring labor demand that’s showing some signs of cooling. Private payrolls rose 145,000 last month after an upwardly revised 261,000 increase in February, according to figures from ADP Research Institute in collaboration with Stanford Digital Economy Lab.
“ADP private employment tally was much weaker than expected, and with other high-frequency labor market metrics, suggests deteriorating labor-market growth,” said Stan Shipley, economist at Evercore ISI. “Whisper fears suggest a tepid jobs report on Friday.”
The upcoming US payrolls report is forecast to show employers added about a quarter of a million jobs last month and the unemployment rate held at a historically low level.
Inflation Wild Card
To Bill Adams, chief economist at Comerica Bank, while the recent jobs figures support a pause in Fed policy tightening, an upside surprise from next week’s inflation reports could still tip the balance toward another quarter-point rate increase.
“The labor market is getting less tight. This is one of the Fed’s conditions for pausing its interest rate hiking campaign, but the Fed also wants to see core inflation slow more,” Adams noted.
For now, swap contracts price in an increase of about 11 basis points. And the renewed slide in Treasury yields intensifies the market’s standoff with the Fed, which last month raised the policy rate band by a quarter percentage point to 4.75%-5%.
Fed Bank of Cleveland President Loretta Mester said officials will need to raise interest rates “a little bit higher” and then hold them there for some time to bring inflation back toward their goal.
“We certainly are focused on inflation and making sure that inflation gets back down to 2% over time,” she told Bloomberg Television, adding that it’s too soon to say what officials will do at the May policy meeting.
Read: IMF Warns 2% of Global GDP at Risk as FDI Hit by US-China Split
Key events this week:
- 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 fell 0.5% as of 10:55 a.m. New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.4% to $1.0908
- The British pound fell 0.5% to $1.2442
- The Japanese yen rose 0.6% to 130.97 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $28,179.38
- Ether rose 1.3% to $1,903.56
Bonds
- The yield on 10-year Treasuries declined six basis points to 3.28%
- Germany’s 10-year yield declined seven basis points to 2.17%
- Britain’s 10-year yield was little changed at 3.43%
Commodities
- West Texas Intermediate crude fell 0.9% to $80 a barrel
- Gold futures fell 0.1% to $2,035.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Srinivasan Sivabalan, Carly Wanna and Peyton Forte.
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