U.S. stocks decline as hot jobs stoke fear of Fed

Reuters

U.S. stocks decline as hot jobs stoke fear of Fed

Feb 3, 2023 at 1:18 pm GMT

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Main U.S. indexes down, but off lows: Nasdaq off ~0.7%

U.S. Jan ISM N-Mfg PMI 55.2 vs 50.4 estimate

Euro STOXX 600 index ~flat

Dollar, crude up; gold slides; bitcoin ~flat

U.S. 10-Year Treasury yield jumps to ~3.53%

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U.S. STOCKS DECLINE AS HOT JOBS STOKE FEAR OF FED (1010 EST/1510 GMT)

Wall Street's main indexes are lower early on Friday after data showed the economy added jobs at a rapid pace last month, feeding into fears that the Federal Reserve could keep interest rates higher for longer in its fight against inflation.

That said, there has been some recovery off early lows. The Nasdaq .IXIC, which opened more than 2% lower, is now off less than 1%.

Still, nearly all S&P 500 .SPX sectors are red with interest-rate sensitive utilities .SPLRCU and real estate .SPLRCR taking the biggest hits. This, as the U.S. 10-Year Treasury yield US10YT=RR is surging back over 3.50% from 3.40% on Thursday.

Banks .SPXBK and energy .SPNY are providing glimpses of green.

Here is a snapshot of where markets stood around 1010 EST:

(Terence Gabriel)

*****

IS JAN PAYROLLS THE REALITY CHECK MARKETS NEEDED? (0951 EST/ 1451 GMT)

After the Labor Department's closely watched employment report showed a rapid increase in January job growth, markets are now reassessing whether the Federal Reserve will indeed take its target rate above 5%.

Nonfarm payrolls showed 517,000 job additions in January, almost three times expectations of 185,000 additions, highlighting that the Fed's rate-hiking spree did little to shake the resilient U.S. labor market.

Markets are finally waking up to the reality of just how dire the situation could be in terms of the Fed having to really continue to push rates up, according to Brandon Pizzurro, director of public investments at Guidestone Capital Management in Texas.

The data also came in just as investors cheered Fed Chair Jerome Powell acknowledging that inflation was starting to ease after the U.S. central raised rates by a quarter of a percentage point on Wednesday.

Markets kicked off the year on solid footing, backed by hopes that the Fed would deliver just one more rate hike in March before calling it quits, but the blowout jobs reading has many expecting at least two more increases.

This would take the peak rate above 5%, a level repeatedly backed by Fed officials, a stark contrast to markets pricing in rate cuts by the end of the year.

"It's going to get harder to argue that rate cuts may be in 2023's future if the labor market is able to continue like this," said Mike Loewengart, managing director at Morgan Stanley.

(Shreyashi Sanyal, Ankika Biswas)

U.S. STOCK FUTURES RED ON HOT JOBS NUMBER, DISAPPOINTING TECH-TITAN EARNINGS (0900 EST/1400 GMT)

U.S. equity index futures are under pressure in the wake of the release of the latest data on U.S. employment.

The January non-farm payroll headline jobs number came in at 517k well above the 185k estimate. The unemployment rate was 3.4% vs a 3.6% estimate. Of note, wage data, on a month-over-month basis was in-line with the Reuters Poll, and slightly above the estimate on a year-over-year basis:

According to the CME's FedWatch Tool FEDWTACH, the probability of a 25 basis point rate hike at the March FOMC meeting has now risen to around 95% from 83% just before the numbers were released. There is now around a 5% chance that the Fed sits on its hands in March from around 17% just before the data came out.

CME e-mini Nasdaq 100 futures NQcv1 are leading U.S. equity index futures lower, sliding around 2%. In the wake of disappointing tech-titan earnings reports, the futures were down around 0.8% just before the numbers came out.

Nearly all of the 11 S&P 500 sector SPDR ETFs are quoted down in premarket trade, with FANG groups such as consumer discretionary .SPLRCD, communication services XLC.P and tech XLK.P taking the biggest hits. Energy XLE.P is rising slightly, while staples XLP.P are around flat.

Regarding the jobs data, Quincy Krosby, chief global strategist, at LPL Financial said, "Certainly it's way above the consensus estimate. This is not what the market wants to see, nor is it what the Fed wants to see at this stage."

Krosby added, "This is kind of report that you want to see when coming out of a recession to signal strength in the economy, not when the futures market is looking at the Fed finishing its rate hike cycle."

Here is a premarket snapshot:

(Terence Gabriel, Caroline Valetkevitch)

*****

FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE

NFP02032023https://tmsnrt.rs/40sfwYL

premarket02032023https://tmsnrt.rs/3Y3x1gH

earlytrade02032023https://tmsnrt.rs/3YlIzLP

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)

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