Wall Street steadies after US jobs report sell-off

Dollar weakened and government bond yields fell amid US jobs report

LONDON:

US and global stock markets gained ground on Monday, recovering from losses sparked by a strong US jobs report last week that bolstered the case for sharp interest rate hikes, while the dollar weakened and government bond yields fell.

On Wall Street, the Dow Jones Industrial Average rose 0.69% to 33,029.18, the S&P 500 gained 0.70% to 4,174.11 and the Nasdaq Composite added about 0.8% to 12,759.00 in early trading.

Those gains echoed the broad Euro STOXX 600, which gained about 1% on Monday, led by cyclical and growth stocks, helping recover losses from Friday. Miners and technology stocks, hit hard in the previous week, led the gains.

The MSCI world equity index, which tracks shares in 47 countries, added 0.75%, also recovering from losses on Friday.

Yet higher rates remained squarely in focus for investors.

“The rise in inflation and the Fed’s reaction to it has been a real headwind for valuations this year,” Morgan Stanley strategists wrote in a note on Monday.

“However, it’s also been a tailwind for earnings. Now, we are on the other side of that mountain, and operating leverage is rolling over likely more than the consensus expects.”

Indeed, business investment appears to be an early victim of red-hot US inflation and rising interest rates, according to fresh US government data.

The strong US jobs data raised the stakes for the July US consumer prices report due on Wednesday, which could see a slight pullback in headline growth, but likely a further acceleration in core inflation.

“Our economists expect the headline (annual) rate to finally dip after energy prices have fallen of late,” Deutsche Bank analysts wrote.

US Treasury yields dipped on Monday as investors continued to digest the jobs report and how the Fed will react. Fed funds futures traders are now pricing for a 69% chance of another 75-basis-point rate increase in September, and for the fed funds rate to rise to 3.65% by March, from 2.33% now.

Benchmark 10-year note yields fell to 2.794% on Monday, after getting as high as 2.869% on Friday, the highest since July 22. Two-year yields were last 3.232%, after reaching 3.331% on Friday, the highest since June 16.

Dollar Exceptionalism?

The US dollar fell nearly 0.5% versus a basket of six major currencies to 106.19 , giving up some gains after strengthening on the jobs boom and the jump in yields.

Foreign exchange analysts were bullish on the US currency’s prospects.

“Data like this will further any thoughts about ‘US exceptionalism’ and is very positive for the US dollar against all currencies,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank, referring to the US jobs statistics.

The euro squeezed out slim gains to reach $1.02.

Bitcoin and other cryptocurrencies, which tend to act as a barometer for risk appetite, gained. Bitcoin was last up 3.3% at $23,952.

Gold broke higher on Monday as the dollar and Treasury yields retreated. Spot gold rose 0.8% to $1,787 per ounce, after dropping 1% in the previous session. US gold futures added 0.66% higher to $1,784.

Oil prices edged up on Monday, hovering near their lowest levels in months in volatile trading as positive economic data from China and the United States spurred hopes for demand growth despite recession fears. US crude rose 1% to $89.91 per barrel and Brent also added about 1%, to $95.91 per barrel.

Published in The Express Tribune, August 9^th, 2022.

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