US stocks dropped after an avalanche of data sent conflicting signals about the American economy and labor market, likely cementing the case for Federal Reserve Chair Jerome Powell to remain hawkish during his speech on Wednesday.
(Bloomberg) — US stocks dropped after an avalanche of data sent conflicting signals about the American economy and labor market, likely cementing the case for Federal Reserve Chair Jerome Powell to remain hawkish during his speech on Wednesday.
The S&P 500 fell after a report showed job openings surging, in stark contrast to US private payrolls data that came in earlier on Wednesday hinting at a cooling labor market. The tech-heavy Nasdaq 100 slid at least 0.6% before trimming some of its declines. A reading of the Institute for Supply Management’s manufacturing gauge, meanwhile, came in lower than expected.
Treasuries gained, with the benchmark 10-year yield around 3.46%. The policy-sensitive two-year rate hovered around 4.20%. A dollar index fell.
The Fed is expected to raise rates by a quarter percentage point, slowing its pace of hikes for a second consecutive session. Still, January’s equity rally shows that stock investors are at odds with the Fed, despite Powell and his colleagues reinforcing that rates will remain higher for a while.
Wage-cost data that undershot forecasts on Tuesday, as well as a cooling housing market and dwindling consumer confidence suggest the Fed’s rate hikes over the past year have begun to curtail inflation. However, contradictory data that came in Wednesday might make the case for Powell to stay hawkish.
“Fed officials are likely to reiterate their intention to keep the Federal Funds rate at a restrictive level for the foreseeable future and to stress that they have no intention of lowering interest rates anytime soon,” said Ed Yardeni, the founder of Yardeni Research.
After Wednesday’s announcement, investors will turn focus on when the Fed will pause its rate hikes, said Richard Flynn, managing director at Charles Schwab UK.
Investors are also digesting a raft of company earnings. Electronic Arts Inc. slumped after cutting its full-year forecast while Advanced Micro Devices Inc. climbed after robust earnings. Snap Inc. fell the most intraday since October after projecting its first ever quarterly revenue decline on Tuesday.
Meanwhile, inflation in the euro area slowed more than economists’ expectations in January, according to a report. The core measure remained sticky, however, suggesting a heated debate to come at the European Central Bank over how much more interest rates must rise. The central bank is expected to lift its policy rate by 50 basis points on Thursday.
“Headline inflation continues to fall across the eurozone but core inflation, which strips out food and energy, flatlined,” said John Leiper, Chief Investment Officer at Titan Asset Management. “Price pressure, particularly in the services sector, will remain elevated for some time. Given the economy is holding up far better than predicted we expect the ECB to hike interest rates again on Thursday by a widely anticipated 50 basis points.”
Key events this week:
- FOMC rate decision, Fed Chair Jerome Powell press conference, Wednesday
- Earnings Wednesday include: Meta Platforms and Peloton Interactive
- Eurozone ECB rate decision, President Christine Lagarde press conference, Thursday
- UK BOE rate decision, Thursday
- US factory orders, initial jobless claims, US durable goods, Thursday
- Earnings Thursday include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 12:59 p.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 1.1%
- The MSCI World index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.4% to $1.0907
- The British pound fell 0.2% to $1.2301
- The Japanese yen rose 0.7% to 129.24 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $22,993.74
- Ether fell 0.4% to $1,571.69
Bonds
- The yield on 10-year Treasuries declined five basis points to 3.46%
- Germany’s 10-year yield was little changed at 2.28%
- Britain’s 10-year yield declined three basis points to 3.31%
Commodities
- West Texas Intermediate crude fell 3.4% to $76.18 a barrel
- Gold futures fell 0.3% to $1,939.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Robert Brand and Isabelle Lee.
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