US government bond prices and Wall Street stock-index futures fell after the key monthly jobs report pointed to robust wage growth and a bigger than expected decline in the country’s unemployment rate, strengthening bets for an interest rate rise.
S&P 500 futures declined 0.3 per cent with less than an hour before the opening bell, while those following the tech-heavy Nasdaq 100 index slid 0.8 per cent.
At the same time, the yield on the benchmark 10-year US Treasury note rose 0.03 percentage points to 1.76 per cent as its price fell. This key debt yield has climbed from about 1.53 per cent at the start of January.
US employers added 199,000 new workers in December, according to the labour department’s monthly non-farm payrolls report, down from 249,000 in November. Economists polled by Reuters had expected to see 400,000 new hires in December.
However, the US unemployment rate dipped to 3.9 per cent from 4.2 per cent in November, compared with expectations that it would fall to 4.1 per cent. Average hourly earnings jumped 4.7 per cent on a year on year basis, from an upwardly revised 5.1 per cent the previous month — also exceeding market expectations.
Ahead of the jobs report, bond investors had been particularly focused on what the unemployment and earnings figures would signal about the future path of inflation in the world’s largest economy.
“If people who are looking for a job don’t come back, while the unemployment rate is low, then you have wage pressures that lead to higher inflation, said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich. “So markets then anticipate the Fed tightening financial conditions.
Wall Street stock markets have whipsawed this week as investors assessed minutes from the Federal Reserve’s latest meeting that revealed officials were considering a faster timetable for interest rate rises this year than investors had anticipated, in order to combat elevated US inflation.
US consumer prices increased 6.8 per cent in the year to last November as a rebound in consumer demand from 2020’s pandemic-related lows coincided with supply-chain constraints.
The Fed minutes showed some Fed officials suggested the US central bank could raise rates even before its goal of maximum employment had been reached, in a move that has put pressure on technology stocks. The tech sector, home to a slew of fast-growing groups, has been lifted in recent years by low interest rates, which provide a boost to the present value of companies’ expected future profits.
“Markets are ripe for a correction, or greater, at this point,” said Phillip Toews, chief executive of US asset manager Toews Corporation.
“The combination of rising interest rates and inflated asset prices doesn’t usually end well.”
Last year’s double digit gains for global stocks had been fuelled by the Fed and other central banks pushing borrowing costs to record lows as they bought huge quantities of government bonds to shield financial markets from the shocks of coronavirus.
“One of the biggest market themes of 2022 is likely to be how different assets perform as central banks begin paring back their monetary policy support,” said Deutsche Bank strategist Jim Reid, “particularly given inflation is at multiyear highs in a number of countries.”
In Europe, the regional Stoxx 600 share index fell 0.5 per cent. Germany’s 10-year Bund yield rose 0.02 percentage points to minus 0.05 per cent and Italy’s equivalent bond yield rose about 0.04 percentage points to 1.3 per cent.
The dollar index, which measures the US currency against six others, dipped 0.2 per cent.
Brent crude, the oil benchmark, rose by about 1 per cent to $82.77 a barrel.
