The selloff in stocks and bonds got a reprieve Wednesday as traders parsed US data and increased bets that the Federal Reserve can refrain from further interest rate increases.
(Bloomberg) — The selloff in stocks and bonds got a reprieve Wednesday as traders parsed US data and increased bets that the Federal Reserve can refrain from further interest rate increases.
Equity benchmarks touched session highs in the final minutes of trading with the Nasdaq 100 rising 1.4% and the S&P 500 0.8% higher after a final run-up in the tech sector. Tesla Inc. was at the forefront of the advance in large-cap tech names that also included Microsoft Corp. and Amazon.com Inc. The S&P 500 closed above a key technical level.
Read more: S&P 500 Faces Technical Make-or-Break Moment at the 4,200 Line
Ten-year Treasury yields were lower on the day after the rate on the benchmark touched a high of 4.88% during Asian trading hours. Traders are now pricing a less than one-in-five chance of an increase in November, down from one-in-three previously.
Wednesday’s rebound was bolstered by data showing US companies added the fewest number of jobs since the start of 2021 in September, suggesting labor demand in several industries is slowing. A separate report showed the services sector also pulled back modestly last month to the lowest level this year.
The latest leg of the selloff had been fueled by Tuesday’s better-than-expected US job data, as well as a slew of hawkish comments from Federal Reserve officials. As conviction grew that US interest rates could rise further from current 22-year highs, 30-year yields touched 5% for the first time since 2007.
Wall Street has been saying longer term bonds at 5% yields are likely in the near-term. One-time bond king Bill Gross weighed in saying that the US 10-year at 5% would provide “decent” but not “great value” as inflation remains high.
Read more: Bond Markets a ‘Little Oversold’ After ETF Pullout, Gross Says
Volatility could make another appearance when Friday’s payrolls numbers hit as traders search for signs that the economy is cooling and the Fed can pull back from its higher-for-longer messaging.
“Stock investors have been hoping the labor market will loosen up and give the Fed enough breathing room to dial down its hawkishness,” said Mike Loewengart, head of model portfolio construction at the Morgan Stanley Global Investment Office. “ADP isn’t necessarily a reliable predictor of the government’s monthly jobs data, but if Friday’s report also shows the labor market is cooling, stock investors may worry a little less about indefinitely higher interest rates.”
In commodities, crude futures dropped and gold slid.
“Recent developments support our view that markets had become overly confident in pricing a rapid easing of the Fed’s monetary policy,” wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “While we expect equity and bond market conditions to improve, we forecast choppy and rangebound trading in equity markets in the near term.”
Key events this week:
- China has week-long holiday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- US trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.8% as of 4 p.m. New York time
- The Nasdaq 100 rose 1.4%
- The Dow Jones Industrial Average rose 0.4%
- The MSCI World index rose 0.3%
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.5% to $1.0515
- The British pound rose 0.6% to $1.2150
- The Japanese yen was little changed at 149.04 per dollar
- Bitcoin rose 0.8% to $27,617.31
- Ether fell 0.9% to $1,642.44
- The yield on 10-year Treasuries declined seven basis points to 4.72%
- Germany’s 10-year yield declined five basis points to 2.92%
- Britain’s 10-year yield declined two basis points to 4.58%
- West Texas Intermediate crude fell 5% to $84.73 a barrel
- Gold futures fell 0.2% to $1,838.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Macarena Muñoz, Sujata Rao, Michael Msika and Tatiana Darie.
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