Stocks Stay Lower as Data to Keep Pressure on Fed: Markets Wrap

(Bloomberg) — US stocks stayed lower as investors grappled with continued evidence of strength in the labor market, which could keep the Federal Reserve firmly on its path of rate hikes. Treasuries trimmed losses and the dollar remained higher.

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The S&P 500 and the Nasdaq 100 fell after hiring numbers surpassed estimates in a private payrolls report on Thursday and new claims for unemployment benefits unexpectedly fell last week. The data suggest resiliency in the labor market that could lead to higher wages — a key concern for the Fed.

The equity indexes trimmed some of their losses after S&P Global’s December US services purchasing managers’ index data added to signs of the economy cooling. However, sentiment failed to improve as investors mulled the impact recent jobs data could have on Fed policy this year. Traders are now awaiting the government’s payrolls report on Friday for more insight on the labor market.

The Fed has indicated that tight labor conditions give it room to keep at its battle against rising prices. At the same time, officials remain concerned that financial conditions could get too loose to effectively crimp economic growth, even after the Fed embarked on the most aggressive tightening campaign in decades.

“We always say don’t fight the Fed when there are easy monetary conditions. We have to follow that sage advice when there are tightening financial conditions,” Kristen Bitterly of Citigroup Global Markets Inc. said on Bloomberg Television. “All this data we are getting is telling us that they are going to continue on this tightening path.”

Atlanta Fed President Raphael Bostic also bruised sentiment on Thursday after he said the central bank still has “much work to do” to tame inflation. He added to a chorus of hawkish Fed officials this week. Minneapolis Fed President Neel Kashkari said Wednesday he expects rates to rise as high as 5.4%, while Kansas City Fed’s Esther George said she favors a rise above 5%.

Swap rates linked to individual Fed decisions jumped and now suggest a peak in the overnight effective rate of close to 5.05% in the middle of 2023. The current target range for the Fed is 4.25% to 4.5% and there are around 38 basis points of hikes priced in for the next gathering in February.

Read More: Treasury Yields Surge as Strong Jobs Data Bolster Fed Hike Bets

In company news, Bed Bath & Beyond Inc. sank after warning it might not be able to continue as a going concern. Silvergate Capital Corp. plunged after the bank said the crypto industry’s meltdown triggered a run on deposits. Amazon.com Inc. fell, after briefly rising on news that it is laying off more than 18,000 employees, the biggest reduction in its history.

Key events this week:

• Eurozone retail sales, CPI, consumer confidence, Friday

• Germany factory orders, Friday

• US nonfarm payrolls, factory orders, durable goods, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.2% as of 11:57 a.m. New York time

• The Nasdaq 100 fell 1.2%

• The Dow Jones Industrial Average fell 1.3%

• The Stoxx Europe 600 fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%

• The euro fell 0.8% to $1.0521

• The British pound fell 1.3% to $1.1900

• The Japanese yen fell 0.7% to 133.56 per dollar

Cryptocurrencies

• Bitcoin was little changed at $16,833.09

• Ether fell 0.4% to $1,247.96

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.72%

• Germany’s 10-year yield advanced four basis points to 2.31%

• Britain’s 10-year yield advanced six basis points to 3.55%

Commodities

• West Texas Intermediate crude rose 1.8% to $74.13 a barrel

• Gold futures fell 1.3% to $1,834.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Isabelle Lee and Namitha Jagadeesh.

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