New York July 8 2022: US stocks dropped after the jobs report showed that employment growth cooled slightly but remained strong, clearing the path for the Federal Reserve to remain aggressive in its fight against inflation.
The S&P 500 and the Nasdaq 100 fell for the first time in five days. Treasury yields spiked and the two- and 10-year yield curve remained inverted for the fourth day. The Bloomberg Commodity Index is headed for the longest streak of weekly losses since March 2020. The dollar was little changed.
Labor-market data has shown early signs of softening, but investors are mixed on the report. Bloomberg economists are factoring in the possibility that slightly softer data will prompt the central bank to go back to 50 basis point moves, even after the report showed job gains topped analyst estimates. Others see the recent data as a signal that fears of recession are overblown and say that the downshift may be too modest to shake the Fed from its path.
“The reaction feels a bit knee-jerk to me,” said Max Gokhman, chief investment officer for AlphaTrAI. “The market’s muscle memory tells it that a strong labor market means more hikes means sell stocks. The reality at this point may be getting more nuanced as the Fed’s already set on their course and we’re seeing wage growth slow even as jobs remain plentiful. This dynamic can temper inflation without forcing a deep recession. But to ‘price’ this trend requires doing more than looking at the headline.”
Two of the Fed’s most hawkish policy makers, on Thursday, backed raising interest rates another 75 basis points this month, while dismissing recession fears.
“The economy is slowing but the Fed wants it to slow. So I think all the recession talk is a little bit premature right now,” Priya Misra, global head of rates strategy at TD Securities, said on Bloomberg TV. “Inflation is still a problem and the Fed has changed their reaction function, I would argue. They are emphasizing – overemphasizing – headline inflation over the labor market right now. If the labor market is slowing, I don’t think the Fed will change their view.”
Here’s what else Wall Street is saying about US payrolls:
- “Today’s number cements a 75bp hike at the next meeting. JOLTS and payrolls paint a consistent picture of a labor market that isn’t cooling as quickly as the Fed would like, with private payroll growth actually accelerating in June. Wage data also look very strong under the hood, with nonsupervisory wages rising by another 0.5% m/m and 6.4% y/y.” – Aneta Markowska, chief US financial economist at Jefferies
- “There is a feeling of Wile E. Coyote running over the cliff, the economy is slowing, Fed hikes will almost certainly lead to a hard landing, but with employment remaining this strong, and next week’s CPI likely to stay high, the risk that the Fed will hike higher and further than they should increases.” – Steve Chiavarone, senior portfolio manager at Federated Hermes
- “More jobs than expected but falling participation rate means shortages and supply chain related inflation is expected to persist. Data fuels Fed’s aggressive rate increase policy.” – Bryce Doty, senior vice president at Sit Investment Associates
- “As the Fed will focus on the headline unemployment rate being unchanged (regardless of the wrong reason), today’s number will reinforce the aggressive stance they’ve decided to take and why Treasury yields are rising both on the short end and longer end.” – Peter Boockvar, chief investment officer at Bleakley Advisory Group
- “Today’s job number should soothe fears of an imminent recession, but it does nothing to relieve fears of considerable further Fed tightening,” says Seema Shah, chief global strategist at Principal Global Investors.
Earlier, shockwaves spread through the markets after Japan’s former Prime Minister Shinzo Abe was assassinated. The yen fell.
Bitcoin fell, but is trading around $21,000.
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Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.4% as of 9:30 a.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 1.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0167
- The British pound fell 0.1% to $1.2006
- The Japanese yen fell 0.3% to 136.41 per dollar
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.05%
- Germany’s 10-year yield declined two basis points to 1.30%
- Britain’s 10-year yield advanced three basis points to 2.16%
Commodities
- West Texas Intermediate crude rose 1.9% to $104.68 a barrel
- Gold futures were little changed
