Stock market rally falters, dollar retreats as US employment fades

  • US stocks rally fades on concerns over rate hike
  • Russia drops Saturday deadline to resume gas supply route to Germany weighs on market
  • US jobs data shows easing in labor market
  • The dollar retreats from its 24-year high against the yen
  • Oil is recovering, up more than 2%

NEW YORK, Sept 2 (Reuters) – A rally in global equities was signaled on Friday as the U.S. dollar retreated from a 24-year high against the yen after data showed the U.S. labor market was starting to weaken. relax failed to allay investor fears. aggressive interest rate hikes by the Federal Reserve.

The news that Russia has waived a Saturday deadline to resume flows via a major gas supply route to Germany, compounding Europe’s difficulties in obtaining fuel for the winter, has further worsened sentiment in the United States ahead of the Labor Day long weekend. Read more

Data showed on Friday that U.S. employers hired more workers than expected in August, but moderate wage growth and a rise in the unemployment rate to 3.7% suggest there may be less pressure on the Reserve. federal government to offer a third interest rate of 75 basis points. hike this month. Read more

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This initially encouraged investors and helped the S&P 500 Index (.SPX) climb more than 1%. But the gains turned into losses during the day, plagued by fears that a 75 basis point rate hike was still in the cards. The S&P 500 and the Dow Jones Industrial Average (.DJI) lost 1.1% each, and the Nasdaq Composite (.IXIC) fell 1.3%.

Softer data is seen as easing the need for the Fed to raise rates to aggressively rein in inflation, moves that market concerns say could lead to a recession.

Indeed, some analysts said the latest jobs data has kept the debate going over whether the Fed will raise interest rates by 50 basis points later this month, or 75 basis points. base.

“We continue to expect the Fed to rise 50 basis points in September and November. This report contains enough good news for the Fed,” Bank of America analysts said in a note to clients.

But Treasury Secretary Janet Yellen’s hawkish remarks on Friday after the jobs data, where she reportedly said US inflation remained too high and it’s the Fed’s job to bring it down, dampened the euphoria. initial.

Still, European stocks (.STOXX) rebounded 2% from Thursday’s six-week lows, while Britain’s FTSE (.FTSE) jumped 1.9%.

The stock market rally helped the MSCI World Equity Index (.MIWD00000PUS) climb 0.5%. For the week, however, it is heading for a 2.7% decline, which would mark its third consecutive week of losses.

New lockdowns in China had previously fueled worries about global growth, and high energy costs stemming from the war in Ukraine are weighing on Europe.

“The market is focused on how aggressive the Fed is with its hike cycle,” said Giles Coghlan, chief currency analyst at HYCM, adding that expectations for higher rates have solidified since a speech last week. last week by Fed Chairman Jerome Powell. at the Jackson Hole Central Banking Conference.

Markets are worried about “China’s slowdown, eurozone recession and a hawkish Fed,” he said.

Equity funds saw the fourth-largest weekly outflow of 2022, while bond funds saw investors pull money out for a second straight week, BofA said in a note.

In Europe, fears of a recession are growing, with a survey on Thursday showing that manufacturing activity in the eurozone shrank again last month as consumers felt the pinch of a cost of living crisis that slashed their expenses. Read more

The dollar, a beneficiary of higher interest rates, hit a fresh 24-year high against the yen at 140.80, prompting a warning from Japanese Finance Minister Shunichi Suzuki on ‘appropriate’ measures to curb volatility . read more Around midday in New York, the yen had returned to 140.18.

The dollar index, which measures its performance against a basket of six currencies, was flat at 109.58, after hitting a 20-year high in the previous session.

A pause in the dollar’s ascent helped the euro rebound 0.1% to $0.99575.

In bond markets, the yield on benchmark U.S. two-year bonds fell to 3.3955%, after hitting a 14-year high of 3.5510% on Thursday.

The yield on US 10-year bonds fell to 3.1950%.

German 10-year bond yields hovered at 1.520%, near recent two-month highs, as expectations grow of a 75 basis point hike next week from the European Central Bank.

“Nearly half of the euro zone is suffering from double-digit inflation, the pressure on the ECB is mounting,” said Martin Moryson, European economist at DWS.

Reuters Charts

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.6%, heading for its worst weekly performance since mid-June with a 3.6% drop.

The Japanese Nikkei (.N225) was flat and the Chinese blue chips (.CSI300) fell 0.5%.

The southwestern Chinese metropolis of Chengdu announced a lockdown of its 21.2 million people on Thursday, while the tech hub of Shenzhen also rolled out new social distancing rules as more Chinese cities attempted to fight against the recurrent epidemics of COVID-19. Read more

“We maintain the view that China will maintain its zero-COVID policy until March 2023, when the (leadership) reshuffle is fully completed, but we now expect a slower pace of zero policy easing. -COVID after March 2023,” Nomura analysts said.

Oil prices recouped much of their recent losses on expectations that OPEC+ will discuss production cuts at a September 5 meeting, although concerns over COVID-19 restrictions in China and weak global growth continued to limit gains.

Brent crude futures rose 1% to $93.3 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 0.6% to $87.14 a barrel. barrel.

A weaker dollar boosted spot gold, which rose 0.9% to $1,710.00 an ounce.

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Additional reporting by Stella Qiu in Sydney; Editing by Sam Holmes, Christopher Cushing, Tomasz Janowski, Mike Harrison and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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