(Bloomberg) — Data showing a slowdown in the U.S. labor market boosted Wall Street expectations for a Federal Reserve rate cut, sending U.S. Treasury yields lower. Nvidia’s stock price decline widened to 11% in two days.
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Just days before the jobs report was released, the jobs report, known as JOLTS, fell short of expectations and hit its lowest level since 2021. The numbers sparked an immediate reaction in bond markets, with the yield on two-year U.S. Treasuries briefly dropping below levels. Ten-year Treasuries soared this month as traders piled up bets on a huge rate cut.
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Fed’s Beige Book Shows Stagnation and Decline in US Economic Activity
“Markets may not be as nervous as they were a month ago, but they’re still looking for confirmation that the economy hasn’t cooled too much,” said Chris Larkin of Morgan Stanley’s E*Trade. “So far this week, they just don’t get it.”
The Fed is expected to start cutting interest rates in the coming weeks, and the main question now is how big the first rate cut will be. The monthly U.S. jobs report, due out Friday, will likely determine the answer.
Investors are bracing for growth concerns after last month’s jobs report. Chairman Jerome Powell has made clear that the Fed is currently more concerned about risks to the labor market than inflation, and another bad report would strengthen the case for a deep rate cut.
“The market seems to be looking at September as a 25-50 basis point toss,” said Neil Dutta of Renaissance Macro Research. “I think going to 25bp would create the same market movement risk as missing the July meeting, with investors weighing their decisions on the next data point and the view that the Fed is on the back foot. You’ll be fine until you get stronger. Aim for 50 when you can, not when you have to.”
The yield on the 10-year US Treasury note fell 8 basis points to 3.76%. Swap traders have fully priced in the Fed’s quarter-point rate cut in September, with a more than 30% chance of a half-point cut. A total of 110 basis points of easing is expected in 2024, sending the S&P 500 down 0.2%.
Nvidia suffered its worst two-day decline since October 2022. In response to a Bloomberg News report that the U.S. Department of Justice had sent subpoenas as part of an antitrust investigation, the chipmaker said it was in contact with the Justice Department but “not yet.” A summons was issued. ”
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Evercore’s Krishna Guha said the latest job numbers are “soft” but do not signal a rapid deterioration in the labor market.
“The continued low levels of layoffs and employment growth suggest that there are no cracks in the labor market,” Guha said. “Online, while not radical, we think JOLTS is a bit lower than what Friday’s jobs report should show for the Fed to cut rates by 50 basis points in September.”
Interest rate option traders are betting the Fed will begin an easing cycle this month with a 0.5 percentage point cut.
Options related to collateralized overnight lending rates have seen a surge in open interest, or the amount of positions held by traders, in many call contracts expiring on September 13, five days before the central bank’s post-meeting announcement. It shows that there is.
Invesco’s Christina Hooper expects the Fed to cut interest rates by only 25 basis points, but that is likely just the beginning of a “very significant easing cycle.”
Scott Rabner of Goldman Sachs Group said a weak jobs report on Friday could lead to a correction in the stock market.
Rabner added that the bank’s clients have already expressed the view that the stock price will be technically negative in the second half of September and expects the risk-off movement to begin on September 16th.
“If the employment report is weak, the market correction could start to gain momentum,” he said.
Bank of America customers were net sellers of U.S. stocks for the second week in a row, the biggest net selloff since late 2020, amid heightened uncertainty over the economic outlook.
Quantitative strategists led by Jill Carey Hall said in a note on Wednesday that institutional investors, hedge funds and individual clients were all selling U.S. stocks, with net sales totaling 8 billion for the week ending Aug. 30. He said it reached $.
Company highlights:
Hewlett Packard Enterprise Co. reported lower-than-expected profit margins, suggesting its closely watched business selling artificial intelligence work servers was less profitable than expected.
C3.ai Inc., a data analytics software company, reported lower-than-expected quarterly subscription revenue.
U.S. President Joe Biden is preparing to block Nippon Steel’s $14.1 billion acquisition of United Steel Corporation, according to people familiar with the matter.
Verizon Communications is in talks to buy rival carrier Frontier Communications Parent, according to people familiar with the negotiations.
The Nordstrom family is considering taking its namesake department store chain private in a proposed $3.8 billion deal.
Dollar Tree’s steep decline heralded pain for companies that serve consumers making less than $35,000 a year.
This week’s main events:
Eurozone retail sales Thursday
US new jobless claims, ADP employment, ISM services index, Thursday
Eurozone GDP, Friday
US nonfarm payrolls, Friday
Fed’s John Williams speaks on Friday
The main movements in the market are:
stock
As of 4 p.m. New York time, the S&P 500 was down 0.2%.
Nasdaq 100 fell 0.2%
The Dow Jones Industrial Average is little changed.
MSCI World Index falls 0.4%
currency
The Bloomberg Dollar Spot Index fell 0.3%.
The euro rose 0.3% to $1.1077.
The British pound rose 0.2% to $1.3143.
The Japanese yen rose 1.1% to 143.84 yen to the dollar.
cryptocurrency
Bitcoin fell 0.3% to $58,067.06.
Ether fell 0.4% to $2,453.49.
bond
The 10-year Treasury yield fell 8 basis points to 3.76%.
Germany’s 10-year bond yield fell 5 basis points to 2.22%.
The UK 10-year bond yield fell 5 basis points to 3.93%.
merchandise
This article was produced in partnership with Bloomberg Automation.
–With assistance from Vildana Hajric.
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