(Bloomberg) — Stock futures fell and bond yields climbed after data showing a still solid US labor market threw cold water on expectations the Federal Reserve would soon moderate its pace of rate hikes to prevent a more significant economic slowdown.
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S&P 500 contracts pushed lower, signaling the benchmark gauge will drop for a third consecutive session. Treasury 10-year yields climbed, pushing toward a 10th straight week of increases — the longest winning run since 1984. The dollar rose.
Nonfarm payrolls increased 263,000 in September — the smallest monthly advance since April 2021 — after a 315,000 gain in August, a Labor Department report showed Friday. The unemployment rate unexpectedly dropped to 3.5%, matching a five-decade low. Average hourly earnings rose firmly.
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“Overall, this report should keep expectations of any ‘dovish pivot’ at bay, and underlines our concerns that any shift in policy is much more likely to be provoked by much worse financial market conditions than a soft landing in the underlying US economy,” said Michael Shaoul, chief executive officer at Marketfield Asset Management.
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“Bottom line: 75 bp in November is a done deal, and I think 75 bp in December is becoming a real possibility,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
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“Today’s job number is a hawkish reading, with almost all the elements of the report moving in the wrong direction for the Fed,” said Seema Shah, Chief Global Strategist, Principal Global Investors. “Payrolls were broadly in line with expectations but, importantly in this good news is bad news, period: markets were hoping for a downside surprise today. Instead, the number only confirms that the Fed needs to hike rates by a fourth consecutive 0.75% in November.”
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“On net, it was a strong enough read to keep a 75 bp Nov hike as the path of least resistance, but the deceleration in wage growth YoY adds to the case for a slowed hiking pace to 50 bp in December, and we still expect the final 25 bp hike in February to reach terminal,” said Ian Lyngen, head of US rate strategy at BMO Capital Markets
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“While the data was about as expected, the drop in the unemployment rate is seemingly what the markets are obsessed with because of what it means for the Fed,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “As for the still low unemployment rate and when combined with the low level of initial jobless claims, the pace of firing’s remains muted and this of course gets the Fed all fired up about continuing with its aggressive rate hikes.”
The September jobs numbers will be followed by the minutes of the Fed’s latest meeting and inflation figures next week. Five Fed officials, in separate remarks during the course of Thursday, delivered a resolutely hawkish message that inflation remains too high and they won’t be deterred from raising interest rates by volatility in financial markets.
Investors poured the most money into cash since April 2020 on fears of a looming recession, but stocks could see further declines as they don’t fully reflect that risk, say Bank of America Corp. strategists.
Even as major benchmarks bounced off last month’s lows, the bank’s report citing EPFR Global data showed cash funds received nearly $89 billion in the week through Oct. 5, while investors withdrew $3.3 billion from global stock funds.
Some of the main moves in markets:
Stocks
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Futures on the S&P 500 fell 1.1% as of 9:04 a.m. New York time
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Futures on the Nasdaq 100 fell 1.7%
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Futures on the Dow Jones Industrial Average fell 0.8%
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The Stoxx Europe 600 fell 0.5%
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The MSCI World index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.4% to $0.9753
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The British pound fell 0.2% to $1.1138
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The Japanese yen was little changed at 145.04 per dollar
Cryptocurrencies
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Bitcoin fell 2.4% to $19,571.28
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Ether fell 2.6% to $1,328.45
Bonds
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The yield on 10-year Treasuries advanced six basis points to 3.88%
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Germany’s 10-year yield advanced 10 basis points to 2.18%
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Britain’s 10-year yield advanced six basis points to 4.23%
Commodities
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West Texas Intermediate crude rose 1% to $89.35 a barrel
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Gold futures fell 0.8% to $1,707.20 an ounce
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