Stocks Rise as Weak Economic Data Sink US Yields: Markets Wrap
(Bloomberg) — Wall Street traders sent stocks higher and bonds yields fell as a string of weaker-than-estimated economic reports reinforced the case for the Federal Reserve to start cutting rates this year.
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In a shortened session ahead of the US holiday, the S&P 500 headed toward a fresh record on bets policy easing will keep fueling Corporate America. Treasuries climbed as data showed US services sector contracted at the fastest pace in four years, private payrolls rose at a moderate pace and continuing jobless claims climbed for a ninth straight week.
To Win Thin and Elias Haddad at Brown Brothers Harriman & Co., if the data cooperate, a September Fed cut will be “very much in play.”
“Bad news is good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted in the aftermath of today’s US data releases, which all came out weaker than expected.”
Traders will get further insight into the state of the labor market Friday with the June employment report. Economists anticipate a 190,000 gain in nonfarm payrolls — a step-down from the previous month — with the unemployment rate holding at 4%.
Treasury 10-year yields fell seven basis points to 4.36%. Swap traders are projecting almost two rate cuts in 2024, with the first in November — though bets on a September reduction increased. The dollar headed toward its biggest drop since mid-May.
The S&P 500 rose to around 5,520. Tesla Inc. extended its rally into a seventh straight session. Amazon.com Inc. fell. The stock market is set to close at 1 p.m. New York time Wednesday, while the recommended close for Treasuries is 2 p.m. — when the Fed minutes will be released.
“The bulls are facing little opposition, as most of the pessimists have capitulated, and seasonality and fund flows provide a tailwind,” said Mark Hackett at Nationwide. “Clouds are developing in the macro picture, most notably in consumer data, but the glass-half-full mindset of investors continues to drive markets higher.”
A survey conducted by 22V Research shows that 40% of investors think the market reaction to Friday’s employment data will be negligible/mixed, 34% said “risk-on” and 26% “risk-off.”
“Investors are paying the most attention to payrolls,” said Dennis DeBusschere at 22V. “The focus on wage growth has dropped some, which is a bit surprising given Powell’s explicit focus on wages yesterday. He said service inflation, which has been sticky, is dependent on wages.”
The 22V survey also showed there is an upside skew to the unemployment rate assumptions. That is consistent with the risk the Fed has pointed out, the firm said.
Fed Chair Jerome Powell said Tuesday that the latest economic data suggest inflation is getting back on a downward path, but emphasized officials need more evidence before lowering interest rates. When he was asked what keeps him up at night, he pointed to the delicate balance between taming inflation and avoiding a significant deterioration in the labor market.
“Until employment weakens significantly there remains a fundamental support for the US economy, though there is some evidence of slowing,” said Don Rissmiller at Strategas. “Fed members have indicated they want to see more progress on inflation – fortunately the US economy still looks robust enough currently to take an extended rate pause. But the clock is ticking.”
Meantime, Fed Bank of New York President John Williams, who has deeply researched the natural rate of interest known as r-star, pushed back against recent commentary that it has risen since the pandemic.
The idea of a long-run natural rate of interest, which prevails when the economy is not responding to shocks and is growing at its potential, is central to monetary policy but cannot be directly observed. Officials aim to raise rates above the neutral level to cool the economy and fight inflation.
Corporate Highlights:
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Paramount Global jumped after a merger deal with independent film and TV producer Skydance Media was revived.
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Jeff Bezos disclosed a plan to unload 25 million additional shares of Amazon.com Inc. worth $5 billion on the day the stock hit a fresh record.
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Novo Nordisk A/S’ best-selling diabetes and weight-loss drugs Ozempic and Wegovy appears to be associated with a higher risk of a rare form of vision loss, according to an analysis by doctors at Massachusetts Eye and Ear, a Harvard-affiliated hospital.
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Southwest Airlines Co. has adopted a shareholder rights plan to defend against a push for a leadership overhaul by activist firm Elliott Investment Management.
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SoftBank Group Corp. hit a record high, a vote of confidence in Masayoshi Son’s ambitions to ramp up investments in AI and semiconductors.
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Trading house Trafigura Group Pte Ltd has bought a gas-fired power plant in the US, part of a growing wave of merchants piling into supplying volatile electricity markets.
Key events this week:
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UK general election, Thursday
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US Independence Day holiday, Thursday
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Eurozone retail sales, Friday
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US jobs report, Friday
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Fed’s John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.2% as of 11:52 a.m. New York time
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The Nasdaq 100 rose 0.5%
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The Dow Jones Industrial Average fell 0.2%
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The Stoxx Europe 600 rose 0.7%
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The MSCI World Index rose 0.5%
Currencies
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The Bloomberg Dollar Spot Index fell 0.4%
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The euro rose 0.5% to $1.0797
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The British pound rose 0.6% to $1.2763
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The Japanese yen was little changed at 161.50 per dollar
Cryptocurrencies
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Bitcoin fell 2.9% to $60,130.56
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Ether fell 3.5% to $3,296.75
Bonds
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The yield on 10-year Treasuries declined seven basis points to 4.36%
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Germany’s 10-year yield declined two basis points to 2.59%
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Britain’s 10-year yield declined eight basis points to 4.17%
Commodities
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West Texas Intermediate crude rose 0.3% to $83.02 a barrel
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Spot gold rose 1.4% to $2,363.02 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from John Viljoen, Sujata Rao and Winnie Hsu.
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