The Friday Market Minute
- Global stocks retreated again Friday, as government bond yields continue to rise, ahead of today’s key reading on U.S. job gains that could cement bets for faster Fed rate hikes.
- Non-farm payroll forecasts suggest job gains of between 190,000 and 200,000 last month, but investors will be watching for any sustained boost in average hourly wages
- The U.S. dollar index remains elevated in foreign exchange markets, keeping emerging market and Asia stocks on the back foot as risky asset re-pricing.
- Global oil prices resume their climb after yesterday’s sell-off, with crude booking solid gains following comments from White House security adviser John Bolton on Iranian sanctions
- U.S. equity futures suggest modest opening bell slides after the biggest single-day decline since June 25 yesterday, but much will depend on the market’s reaction to the employment report at 8:30 am eastern time.
Global stocks retreated again Friday, while government bond yields around the world continued to edge higher, as investors prepared for a key reading of the U.S. job market later today that could cement bets that sustained wage growth will leader to faster inflation and sharper rate increases from the Federal Reserve.
A series of comments from Fed officials this week, including Chairman Jerome Powell, as well as a host of U.S. economic data confirming both robust economic growth and a tight labor market, have forced investor to re-price both the “risk free” rate of U.S. Treasury bonds and the trillions in assets that are linked to them in markets all over the world.
The moves have taken benchmark 10-year U.S. Treasury bond yields to 3.23% — the highest in seven years — and boosted the value of the dollar on global foreign exchange markets while trimming more than 200 points from the Dow Jones Industrial Average and pushing broader U.S. stocks into their worst session since June 25.
If the Commerce Department’s non-farm payroll report, which is expected to show that employers added between 190,000 and 200,000 net new jobs to the economy last month, also indicates a corresponding rise to average hourly wages, investors could take Treasury yields higher in anticipation of a more definitive Fed move and pound stocks once again.
With that in mind, and markets in China closed for the final day of the Golden Week holiday celebrations, markets in Asia were weaker across the board, with the MSCI Asia ex-Japan index falling 0.69% and the Nikkei 225 notching its second consecutive decline to close 0.8% lower at 23,783.72 points.
Early indications from U.S. equity futures, however, were slightly more upbeat, with contracts tied to the Dow suggesting a 30 point slide at the opening bell, while those linked to the S&P 500 suggested a 2.8 point bump lower for the broader benchmark. Nasdaq Composite future were seen 28 points lower from their Thursday close.
The U.S. dollar index, which benchmarks the greenback against a basket of six global currencies, was modestly softer at 95.84, even as 10-year yields held at 3.23%. Long-term Treasury bond yields were a few basis points lower at 3.35%, but remain notably about the 3.25% threshold that some investors have indicated as a ‘breakout’ level to sustain higher rates in the years ahead.
European stocks were weaker at the start of trading, as well, with the Stoxx 600 down 0.5% from its Thursday close in the opening hour of trading and Italy’s FTSE MIB index falling 0.6% in Milan amid ongoing concern over the spending plans of the anti-European government at the helm of the region’s third-largest economy.
Britain’s FTSE 100 drifted 0.5% in London, as the pound crept past 1.3028 against the dollar and benchmark 10-year government bonds, known as gilts, traded at 1.69%, the highest since January 2016. In Germany, benchmark 10-year bund yields jumped to a four-and-a-half month high of 0.553%.
Global oil prices were back on the march Friday, as well, following yesterday’s sharp “risk-off” related pullback sparked by the surge in Treasury yields, which sent Brent crude nearly 2% lower by the close of trading.
The upward pressure on prices was linked, in part, to comments from White House security adviser John Bolton, who told reporters in Washington yesterday that Iran has been “the world’s central banker of international terrorism since 1979” and that looming U.S. sanctions on the sale of Iranian crude, which kick in next month, would seek to reduce Tehran’s sales to zero.
Brent crude prices for December delivery, the global benchmark, were seen 18 cents higher from their Thursday close in New York and trading at $84.76 per barrel. WTI contracts for November delivery, which are more tightly linked to U.S. gasoline prices, were marked 36 cents higher at $74.69 per barrel.
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