(Bloomberg) — Policy-related Treasury bills fell, pushing two-year yields back above 4% as a solid hiring report increased bets on another Federal Reserve rate hike. US stock futures rose before a premature close as the report eased fears that the economy was headed for recession.
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Contracts on the S&P 500 rose, while the two-year yield rose 15 basis points to 4.02% after the March hiring report showed resilience in the job market, which could allow the Fed to tighten policy. The number of new jobs added exceeded 200,000, wage growth slowed and the unemployment rate fell.
“These payroll data still suggest the job market is on firm ground, but the magnitude of payroll increases relative to expectations is not significant enough for the Fed to change course dramatically,” said George Cipolloni, portfolio manager at Penn Mutual Asset Management, called. “Wage growth was as expected. I don’t see much here to deter the Fed from its current course.”
Cash stock markets are closed in the US for the Good Friday holiday and futures halted trading at 9:15 am in New York. Treasuries opened for an abbreviated session, with a recommended close at midday. European markets were mostly closed.
Trading in swaps showed the odds of a quarter-point rate hike at the Fed’s May meeting rose to about two-in-three, from about 50-50 before the data landed. Investors have been aggressively pricing in rate cuts later this year as economic data has fallen short of estimates, suggesting the US economy is slowing.
Data on Thursday showed that jobless claims filings rose more-than-expected, a day after a private reading on hiring came in below estimates. Job vacancies also fell more than forecast, adding to concerns about a slowdown in the labor market.
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The next key data point for the Fed is a consumer prices report due on April 12th. Officials will deliver their monetary policy move on May 3rd.
“While this is an employment report that is unlikely to raise alarm bells, there is still no evidence that policies are tight enough to meaningfully curb demand,” wrote Chris Low, chief economist at FHN Financial, in one E-mail. “Of course other things are afoot in the world including the credit crunch following the recent bank failures. It will all go into the mix.”
The two-year Treasury yield peaked above 5% just before last month’s bank stress and then plummeted as fears mounted that tighter lending would curb growth while aggressive Fed tightening spilled over into the real economy.
Read: Bond Action Goes Crazy on Good Friday Payroll, Stocks Less
The S&P 500 ended its first week of losses in four years as Thursday’s data showed jobless claims topping last week’s estimates, a day after a private payroll report suggested the hiring rate was slowing more than forecast.
US stocks rebounded from early losses on Thursday after St. Louis Fed President James Bullard said he didn’t think tighter credit conditions from the recent banking turmoil would push the economy into recession. Meanwhile, the International Monetary Fund warned that its outlook for global economic growth over the next five years was the weakest in more than three decades, urging nations to avoid economic fragmentation caused by geopolitical tensions and to take measures to boost productivity seize.
The yen faltered after falling against the dollar for the first time this week on Thursday. While much of Asia, including Australia, Hong Kong and Singapore, was closed for public holidays, financial markets in Japan and mainland China were open. Japan’s benchmark Topix edged higher, ending a two-day slump, and stocks in China and South Korea rose.
money markets
The mountain of money parked in money market funds hit a new record high last week, although inflows slowed from the recent breakneck pace. About $49.1 billion flowed into U.S. money market funds in the week ended April 5, according to data from the Investment Company Institute, bringing total assets to an unprecedented $5.25 trillion.
Money market funds have been raising cash lately. Initially, much of this flow was fueled by more attractive interest rates, but concerns over the stability of some smaller lenders helped boost this over the past month.
Some of the key movements in the markets:
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S&P 500 futures were up 0.2% as of 9:15 a.m. New York
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Nasdaq 100 futures were up 0.1%.
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The Topix gained 0.3% while the Nikkei 225 gained 0.2%.
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The Shanghai Composite Index rose 0.3% and the CSI 300 rose 0.6%.
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This story was created with the support of Bloomberg Automation.
–Assisted by Phil Serafino and Stephen Kirkland.
(An earlier version corrected that stocks recovered on Thursday in the sixth paragraph.)
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