[1/2]A trader works at the New York Stock Exchange (NYSE) trading floor in Manhattan, New York City, U.S., November 11, 2022. REUTERS/Andrew Kelly/File Photo
- The world stock index is on track to post its sharpest decline since April
- Stronger than expected labor market data trigger interest rate fears
- Rising global borrowing costs fuel recession concerns
NEW YORK/LONDON, July 6 (Reuters) – The MSCI global stock index fell on Thursday and is on course for its biggest daily percentage decline since April, while government bond yields rose on a surge in US private wage and payrolls fueled fears that interest rates would stay higher for longer.
Payroll company ADP said personal payrolls rose 497k in June, beating economists’ expectations of increases of 228k and 267k in May. The Labor Department said initial jobless claims rose 12,000 to a seasonally adjusted 248,000 in the week ended July 1, but the previous week was revised to show 3,000 fewer claims than reported.
Lorie Logan, President of the Federal Reserve Bank of Dallas, on Thursday heightened concerns that this would result in a more hawkish central bank, that the persistently above-target inflation outlook and a stronger-than-expected job market “need tighter monetary policy.” “
US Treasury yields rose after jobs data bolstered expectations that the Fed would aggressively hike rates to stem stubbornly high inflation. The US dollar pared losses against other major currencies after the report, while stock indices were consistently lower.
“Right now there’s just a lot of uncertainty about how strong the economy is and what the Fed might need to do to deal with inflationary pressures,” said James Ragan, director of wealth management research at DA Davidson.
While the ADP report isn’t always a good guide for the government’s monthly jobs data due to be released on Friday, private payrolls data were so much higher than expected that it raised fears that Friday’s report could also be positive would bring surprises, Ragan said.
“Because we had such a strong result at the end of June, the market is more conservative, at least for today,” he said.
The Dow Jones Industrial Average (.DJI) fell 340.82 points, or 0.99%, to 33,947.82; the S&P 500 (.SPX) lost 32.11 points, or 0.72%, to 4,414.71; and the Nasdaq Composite (.IXIC) fell 105.76 points, or 0.77%, to 13,685.89.
The pan-European STOXX 600 index (.STOXX) ended down 2.34% and MSCI’s global equity index (.MIWD00000PUS) pared losses to 1.21%. It was down as much as 1.7%, its sharpest daily decline since December.
“Everything paints a picture of a market worried about the economy and a Fed still determined to tighten monetary policy,” said Alex Coffey, senior trading strategist at TD Ameritrade.
With “no signs of a worsening job market,” Coffey said that increasingly tightening monetary policy will “almost certainly lead to some kind of economic slowdown.”
Money market traders now see a 94.9% chance of a quarter-point rate hike at the bank’s July 26 meeting and bet on a 28.5% chance of another rate hike in September, compared to 19.1% on Wednesday , as demonstrated by CME Group’s FedWatch tool.
And DA Davidson’s Ragan noted that futures suggest there are few bets on rate cuts until June 2024 compared to recent bets on many, two rate cuts later in 2023.
In government bonds, two-year government bond yields rose above 5% for the first time since early March, reaching their highest level since June 2007.
Benchmark 10-year bonds rose 9.2 basis points to 4.037% from 3.945% late Wednesday. The 30-year bond was last up 5.6 basis points from 3.944% to 3.9997%. The 2-year bond was last up 5.1 basis points to 5.0017% (from 4.951%).
On the currencies side, the dollar index fell 0.194% while the euro rose 0.29% to $1.0882. The Japanese yen is up 0.35% against the greenback to 144.13 per dollar, while sterling was last traded at $1.274, up 0.28% on the day.
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In energy markets, oil prices were little changed as the market digested the higher likelihood of a US interest rate hike, which could dampen energy demand, while tighter US crude stocks limited losses.
U.S. crude was up 1 cent at $71.80 a barrel and Brent closed at $76.52, down 0.17%, or 13 cents.
In precious metals, spot gold fell 0.4% to $1,910.09 an ounce. US gold futures fell 0.58% to $1,908.70 an ounce.
Reporting by Sinéad Carew in New York, Marc Jones in London; Edited by Clarence Fernandez, Hugh Lawson and Richard Chang
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