Bond Yields Rise as Traders Call Fed Bets: Markets Wrap

(Bloomberg) — Treasury yields rose as jobs data fueled speculation that bets on interest rate cuts by the Federal Reserve next year may have gone too far.

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US employers added more jobs than expected and the unemployment rate unexpectedly fell in November. Nonfarm payrolls rose by 199,000 last month after an increase of 150,000 in October. The unemployment rate fell to 3.7% and labor force participation rose. Monthly wage growth rose more than expected.

Two-year Treasury yields rose 10 basis points to 4.7%. The dollar rose. Fed swaps are priced less accommodatively in 2024 than previously expected. S&P 500 futures were volatile after a technology-fueled advance in the previous session.

Wall Street’s reaction to jobs:

“This will give the Fed a reason not to cut in March – and the Fed’s bets should be reconsidered significantly.”

“The big drop in US Treasury yields we saw last month, which already looked a little over, is heading in the opposite direction as bond yields jumped on the news. With markets pricing in interest rate cuts next year, longer interest rates are back in the spotlight.” Once again, taking some momentum away from the big rally seen in stocks last month with stock futures trending lower.

“Today’s jobs report beat expectations, signaling to investors that demand in the labor market remains strong. Today’s numbers may dampen hopes that the Fed will cut interest rates sooner rather than later. This month’s jobs report does not reflect the calm the market was hoping for Most likely, so it may push the needle in terms of what we can expect from Fed policy in the coming months.

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Overall, the release of the Non-Farm Payrolls report puts the Fed in a wait-and-see mode, and there is no rush to cut rates with such a strong employment market – in fact, it may be premature. The data also shows us that the slowdown – for now – has not yet spread to labor markets.

Stock markets will suffer in the first quarter of 2024, as a rise in bonds may signal slowing economic growth, according to Michael Hartnett of Bank of America. The strategist said that the decline in revenues was one of the main catalysts for stock gains in the current quarter. However, a further decline towards 3% would mean a “hard landing” for the economy.

The “low returns = high inventories” narrative will turn into “low returns = low inventories,” Hartnett wrote.

Stocks are poised for further gains in 2024 as inflation trends decline, the economy remains resilient and earnings rebound — raising the opportunity cost for investors still sitting on the sidelines, clinging to their cash. That’s according to David Bailen, chief investment officer and head of investments at Citi Global Wealth.

“I’m not sure what investors are waiting for,” he said. “The US economy will remain strong, and eventually money market interest rates will fall, so why aren’t people buying 60/40 core portfolios?”

The most prominent features of the company:

• Broadcom Inc, a chip supplier to Apple Inc. And other major technology companies expect the rapid expansion of artificial intelligence computing to help offset its worst slowdown since 2020.

• Lululemon Athletica Inc.’s revenue guidance was delayed. The fourth quarter missed Wall Street estimates, a rare miss for a retailer whose performance routinely exceeds investors’ expectations.

• Microsoft and its OpenAI Inc. partnership, which recently experienced an administrative collapse, are facing increased scrutiny after the U.K. antitrust watchdog said it was considering whether it should be called in for a full investigation.

• Commodity trading giant Trafigura Group has paid out $5.9 billion in annual dividends to its employee shareholders, more than tripling the previous year, after posting another record profit in the 12 months to September.

Some key movements in the markets:

Stores

• S&P 500 futures were little changed as of 8:51 a.m. New York time

• Nasdaq 100 futures fell 0.3%

• Dow Jones Industrial Average futures were little changed

• The Stoxx Europe 600 index rose 0.5%.

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was unchanged

• The euro fell 0.2 percent to $1.0768

• The British pound fell 0.2 percent to $1.2568

• The Japanese yen rose 0.1 percent to 143.97 yen to the dollar

Digital currencies

• Bitcoin rose 0.7% to $43,683.36

• Ethereum fell 0.8% to $2,350.2

Bonds

• The yield on the 10-year Treasury note rose seven basis points to 4.22%.

• The yield on 10-year German bonds rose seven basis points to 2.27%.

• The UK 10-year bond yield rose 6 basis points to 4.03%.

Goods

• West Texas Intermediate crude rose 2.4% to $71.01 per barrel

• Gold in spot transactions fell 0.3 percent to $2,021.81 per ounce

This story was produced with assistance from Bloomberg Automation.

– With assistance from Sagarika Jaisinghani and Michael McKenzie.

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