US stocks slide as Fed slams hopes of a rate cut in 2023

US stocks and Treasuries slide on Thursday, while the dollar strengthens, after better-than-expected jobs report showed labor market resilience ahead of positive campaign by the Federal Reserve to address high inflation.

Wall Street’s benchmark S&P 500 fell 1.1%, with nine out of 10 sectors falling, while the tech-heavy Nasdaq Composite dropped 1.2%, wiping out the small gains it posted in the previous session. Meanwhile, Amazon shares fell 1.4% a day after the e-commerce giant announced plans to lay off 18,000 employees.

The drop came after US private-sector employment rose by 235,000 in December, far exceeding estimates, according to payroll processor ADP. Economists polled by Reuters had expected a gain of 150,000, suggesting the US labor market remains tight even as the economy There are signs of slowing down. Meanwhile, initial jobless claims for the final week of December fell to 204,000 from the previous week’s revised 223,000.

The ADP figures support the view – expressed in minutes of the Federal Open Market Committee’s December meeting, released on Wednesday – that labor market conditions in the largest economy The world is exacerbating pressures to increase wages and prices.

“Although the tightening is done so far, [FOMC] Michael Gapen, chief US economist at Bank of America, said the labor market remains tight and unsuitable for price stability.

Column chart of Monthly Change (thousands of jobs) shows US private payrolls continuing to grow

Treasuries sold off in volatile trading, with 10-year yields rising 0.01 percentage points to 3.72%, having previously risen 0.07 percentage points. The dollar’s measure of strength against a basket of six currencies is up 0.8% on the day, even though the world’s de facto reserve currency has weakened by just over 7% over the past three months.

The December FOMC minutes also revealed that no central bank official is predicting a rate cut this year, dealing a blow to traders who don’t believe the Fed will keep interest rates around. 5% to pull inflation back to the target level.

Officials observed that it was “necessary to maintain a limited policy stance” until economic data “provides confidence that inflation is on track to sustainably decline to 2%, which is likely to lose a time”.

Lee Hardman, senior currency analyst at bank MUFG, said the comments, later reinforced by senior IMF official Gita Gopinath, “posed a major barrier to a Fed pause [or] put an end to their bull run in the near term,” though he noted that the market remains “sceptical that the Fed will have to raise rates above 5% as planned.”

In Asia, Hong Kong’s Hang Seng index rose 1.2%, bringing its gain since early November to about 43%. “With the difference in the past [with US indices] “But with global equity markets teetering between earnings and growth concerns, one question arises,” said Mitul Kotecha, head of emerging markets strategy at TD Securities. is how far the Hang Seng can deviate from the global trend. trend”.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks is up 1.9%, up 13% since early November, even as the country faces an unprecedented outbreak. yes of Covid-19.

The Stoxx Europe 600 regional index fell 0.2%, eating into gains of about 3% this week. London’s FTSE 100 gained 0.6% while France’s Cac 40 and Germany’s Dax fell 0.2% and 0.4%, respectively.


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