A look ahead for the day ahead in the US and global markets by Mike Dolan
The seeming composure of June markets was finally punctuated by summer storms as bonds sold off sharply after news last month of buoyant job creation in the US, fueling expectations of further rate hikes.
Three US jobs reports showed on Thursday that the number of people employed in the private sector rose by almost half a million in June – almost twice as much as analysts had forecast.
While the data also showed that weekly jobless claims rose in May and job vacancies eased somewhat, the rate of ‘layoffs’ also rose – underscoring the tightness in the job market that makes the Federal Reserve so uncomfortable with ramping inflation back up target of 2% bring .
Additionally, over the past month there have been signs that activity among dominant companies in the US services sector is regaining momentum.
The release of the Labor Department’s monthly national wages and salaries report on Friday will seal the picture.
The Fed fears that the overall economy is recovering and that inflation rates are still twice as high as expected. “I remain very concerned about whether inflation will return to target in a sustainable and timely manner,” Dallas Fed Chair Lorie Logan said Thursday.
With futures markets showing a more than 80% chance of another Fed rate hike by a quarter point later this month and a nearly 50/50 chance of another rate hike by November, two-year Treasury yields soared everywhere.
US Treasury yields hit a 16-year high of over 5%, German counterparts hit a 15-year high and UK government bond yields hit a 2008 high. The sell-off was on the other side of the curve; 30-year government bond yields topped 4% again, hitting year-highs, while 30-year government bonds were on track for their biggest one-day decline since the UK fiscal farce last autumn.
The S&P500 (.SPX) had its worst day since May and world stocks (.MIWD00000PUS) posted their biggest daily loss since April.
Wall Street’s VIX (.VIX) indicator of implied volatility, which has been particularly muted over the past month, jumped to its highest level since June 1st.
Markets have calmed slightly while waiting for Friday’s payroll confirmation. Hong Kong’s benchmark Hang Seng Index (.HSI) fell nearly 1% and Japan’s Nikkei even more (.N225) as they mimicked overseas selling on Thursday – but European bourses and US futures were flat on Friday and the VIX edged lower.
Crucially, two-year government bond yields fell back below 5%.
Elsewhere, Treasury Secretary Janet Yellen’s trip to China so far shows little sign of fresh breakthroughs in strained relations between the two economic superpowers.
And in the social media war, Elon Musk’s Twitter appears poised to sue Meta (META.O) for launching a rival platform called Threads this week.
Events to keep an eye on later on Friday:
* June US employment report; Employment report for Canada for June
* Lorrie Logan, President of the Dallas Federal Reserve, speaks
* The President of the European Central Bank, Christine Lagarde, and the head of the Bundesbank, Joachim Nagel, speak; Bank of England policymaker Catherine Mann speaks in New York
* NATO leaders meet for summit in Vilnius
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By Mike Dolan, edited by Emelia Sithole-Matarise [email protected]. Twitter: @reutersMikeD
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