Stocks slumped while the retreat in Treasuries get fresh legs after jobs data bolstered the case for the Federal Reserve to keep interest rates elevated.
(Bloomberg) — Stocks slumped while the retreat in Treasuries get fresh legs after jobs data bolstered the case for the Federal Reserve to keep interest rates elevated.
The S&P 500 fell 1.4%, approaching oversold levels, while the Nasdaq 100 index fell 1.7% after a still-too-hot readout on August job openings. Travel names including Airbnb Inc. and cruiseship operator Carnival Corp. sold off. McCormick & Co. slid after sales missed estimates hurt by a slow economic recovery in China.
Markets tumbled across the board after the number of available positions rose to 9.61 million from less than 9 million in July, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS. The report drove swaps traders to increase wagers on the Federal Reserve raising rates in December to better than a 50-50 odds.
Read more: US Job Openings Top All Forecasts as White-Collar Positions Jump
Investors will next be looking to Friday’s monthly payrolls print for any signs that the labor market is cooling.
“Unless, the NFP report comes in lower than expected, Wall Street will likely start to fully price in at least one more Fed rate hike before the end of the year,” said Ed Moya, senior market analyst for the Americas at Oanda.
The US 30-year yield traded near the highest level since 2007, and 10-year rates reached above 4.75%. Wall Street has been speculating that rates on longer dated bonds will hit 5%. West Texas Intermediate crude recovered from an early drop to head back toward $90 a barrel while the dollar index reached a 10-month high.
“The strength of the headline is impressive and certainly bodes well for the ongoing strength in the US labor market,“ Ian Lyngen, head of US rates strategy at BMO Capital Markets, wrote. While the data are from August, “investors are nonetheless interpreting this as yet further confirmation that the US economy can withstand higher real borrowing costs.”
Wall Street strategists are warning about the impact that elevated interest rates have on equities, with Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. saying there’s a risk of further stock-market declines.
Read More: Treasury Selloff Fuels Speculation That Bond Vigilantes Are Back
This week’s Treasury selloff came after US lawmakers managed to avert a government shutdown, prompting traders to increase bets that the Fed will raise rates this year. Atlanta Fed President Raphael Bostic beat the “higher-for-longer” drum Tuesday saying the central bank needed to keep rates elevated “for a long time.”
Comments from other Fed policymakers were even more hawkish, with Cleveland Fed president Loretta Mester saying on Monday that one more rate hike was likely needed and Governor Michelle Bowman urging multiple increases.
Meanwhile, the rally in the greenback drove the yen to its weakest level in a year as the Japanese currency touched 150 per dollar before reversing.
Key events this week:
- China has week-long holiday
- New Zealand rate decision, Wednesday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- US trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.5% as of 11:37 a.m. New York time
- The Nasdaq 100 fell 1.8%
- The Dow Jones Industrial Average fell 1.3%
- The Stoxx Europe 600 fell 1.1%
- The MSCI World index fell 1.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.2% to $1.0457
- The British pound fell 0.2% to $1.2067
- The Japanese yen rose 0.5% to 149.17 per dollar
Cryptocurrencies
- Bitcoin fell 1.8% to $27,343.5
- Ether fell 1.1% to $1,648.1
Bonds
- The yield on 10-year Treasuries advanced 10 basis points to 4.78%
- Germany’s 10-year yield advanced four basis points to 2.97%
- Britain’s 10-year yield advanced three basis points to 4.59%
Commodities
- West Texas Intermediate crude rose 1% to $89.68 a barrel
- Gold futures fell 0.4% to $1,840.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Edward Bolingbroke, Sujata Rao, Julien Ponthus, Jason Scott and Tassia Sipahutar.
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