US equities were firmly in the red in afternoon trade as investors turned their attention to Friday’s payrolls report and its potential implications for Federal Reserve policy.
The blue-chip S&P 500 was down 1 per cent, and tech-heavy Nasdaq Composite fell 1.2 per cent.
US initial jobless claims rose to 211,000 last week, above expectations of 192,000 and the largest increase since October. Jobless claims came in above the 200,000 benchmark for first time in eight weeks.
The data “could mark the start of a long-awaited uptrend, or it could just as likely be a blip in volatile weekly data that will prove to be a non-event,” said Joshua Shapiro, chief US economist at consulting firm Maria Fiorini Ramirez.
“Even after today’s reported increase, the level of unemployment claims remains very low . . . most companies are either still hiring or are holding on to their employees.”
Stock and bond markets have begun to price in a half percentage point rise in interest rates in March in the wake of strong economic data. Investors are awaiting Friday’s non-farm payrolls numbers, which could provide insight on whether the labour market has begun to cool.
Last month’s reading was unexpectedly high, spurring investor concern about the extent of rate rises, and hawkish rhetoric from the Federal Reserve.
“Good macro news equals terrible market news,” said Florian Ielpo, head of macro and multi-asset portfolio manager at Lombard Odier Investment Managers. He added that a high reading would “confirm that more is needed to curb dynamism in the labour market. The reason we saw big numbers last month was because of service job creation which is slower to react [to monetary policy] than industry. When it will is hard to say.”
In his semi-annual congressional testimony this week, Fed chair Jay Powell said the US central bank was willing to return to more aggressive interest rate rises, but stressed “no decision” had been made.
Yields on two-year US Treasuries, which are more sensitive to monetary policy, fell to 4.91 per cent, while those on the 10-year note dropped to 3.9 per cent. Yields move inversely to bond prices.
European stocks also struggled to make headway as investors digested the data. The region-wide Stoxx 600 closed down 0.2 per cent, the German Dax was flat and the French CAC 40 lost 0.1 per cent.
London’s FTSE 100 closed 0.6 per cent lower as mining stocks fell on fears that a stronger dollar would curb profits.
The dollar index, which measures the greenback against a basket of six peer currencies, fell 0.4 per cent. The index has gained 1.8 per cent in the month as yields on US government debt have increased, and traders have pushed up their forecasts for the peak in the federal funds rate.
In Asia, China’s CSI 300 dropped 0.4 per cent after weaker than expected Chinese inflation data. Consumer prices rose 1 per cent and producer prices were down 1.4 per cent — its lowest reading since November 2020. Hong Kong’s Hang Seng fell 0.6 per cent on fears that the equity market rally in China-related stocks after the country lifted its zero-Covid policy was waning.
Oil prices fell for the third consecutive day, with international oil benchmark Brent crude and US equivalent West Texas Intermediate each down 1.3 per cent.
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