NEW YORK (Reuters)
United States (US) stocks sputtered then plunged and Treasury yields extended their fall today (March 10) in the wake of the anxiously anticipated February employment report, and amid mounting worries over contagion in the financial sector which prompted a flight to safety.
All three major US stock indexes were sharply lower and on course for their biggest weekly percentage drops this year.
Shockwaves continue to reverberate through global financial stocks after regulators closed SVB Financial Group after the bank failed to raise capital.
MORE THAN EXPECTED 311,000 JOBS ADDED TO US ECONOMY
“Investors may be getting worried that the Fed is pushing things too far in one direction,” said Sal Bruno, chief investment officer at IndexIQ in New York.
“And with the yield curve as inverted as it is, that is generally not a good environment for banks.”
The US economy added a more-than-expected 311,000 jobs last month, while the unemployment rate unexpectedly ticked higher, along with the labour market participation rate.
Hourly wage growth cooled on a monthly basis, but gained some heat year-on-year, albeit not as much as economists predicted.
“There was something in (the jobs report) for everyone,” Bruno added. “There’s a case to be made for the Fed to be less aggressive if you look at the wage growth.”
He said: “But with payrolls coming in over 300,000, you could make the case that the Fed needs to hike (interest rates) more because the economy is still running very hot.”
EXPECTATIONS COOLED FOLLOWING JOBS REPORT
The data caps a week in which markets were preoccupied with Fed Chairman Jerome Powell’s hawkish two-day testimony before Congress, which moved the needle toward the likelihood that the central bank will hike its key policy rate by 50 basis points this month.
Those expectations cooled following the jobs report.
At last glance, financial markets are now pricing in a 42.5 per cent chance of a 50 basis-point rate hike and a 57.5 per cent chance of a smaller, 25 basis-point increase to the fed funds target rate at the conclusion of the March 21-22 monetary policy meeting.
Analysts now look to Tuesday’s consumer prices data, which will flesh out the February inflationary picture.
The Dow Jones Industrial Average fell 324.48 points, or 1.01 per cent, to 31,930.38, the S&P 500 lost 56.67 points, or 1.45 per cent, to 3,861.65 and the Nasdaq Composite dropped 210.50 points, or 1.86 per cent, to 11,127.86.
European stocks slid to a seven-week low over uncertainty regarding rising interest rates, and looming worries over the health of the U.S. banking sector.
The pan-European STOXX 600 index lost 1.35 per cent and MSCI’s gauge of stocks across the globe shed 1.40 per cent.
Emerging market stocks lost 1.35 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.73 per cent lower, while Japan’s Nikkei lost 1.67 per cent.
US Treasury yields dropped for the second straight day as risk-averse investors sought safe haven amid brewing troubles in the financial sector.
“(There is) a growing crisis of confidence that has triggered a flight to safety,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “Investors are fearful of a bank contagion and have flocked to the safety of Treasuries, elevating the price but reducing the yields.”
Benchmark 10-year notes last rose 58/32 in price to yield 3.7006 per cent, from 3.923 per cent late on Thursday.
The 30-year bond last rose 98/32 in price to yield 3.696 per cent, from 3.87 per cent late on Thursday.
The greenback weakened against a basket of world currencies after the payrolls report hinted at cooling inflation and a slower pace of interest rate hikes from the Fed.
The dollar index fell 0.66 per cent, with the euro up 0.56 per cent at US$1.0639.
The Japanese yen strengthened 1.01 per cent versus the greenback at 134.80 per dollar, while sterling was last trading at US$1.2024, up 0.83 per cent on the day.
GOLD PRICES RALLY AS SAFE-HAVEN METAL
Oil prices jumped after the jobs data, but remained on track to notch a three per cent drop on the week over rate hike jitters.
US crude rose 1.27 per cent to settle at US$76.68 per barrel and Brent settled at US$82.78 per barrel, up 1.46 per cent on the day.
Gold prices rallied as the safe-haven metal benefitted from fears over potential crisis contagion in the banking sector.
Spot gold added 1.7 per cent to US$1,862.27 an ounce.