© Reuters. Passersby are reflected on an electric stock quotation board outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato/File Photo
By Herbert Lash and Marc Jones
NEW YORK/LONDON (Reuters) – Global equity markets shook off New Year blues and bonds sold off on Thursday after U.S. unemployment data indicated a still resilient U.S. labor market that tempered the likelihood of deep Federal Reserve interest rate cuts this year.
Bond yields, which move inversely to price, jumped after the number of Americans filing new claims for unemployment benefits fell more than expected last week, even as the U.S. labor market steadily cools amid the Fed’s restrictive monetary policy.
Also on Thursday, the ADP National Employment Report showed U.S. private employers hired more workers than expected in December, adding to signs labor conditions remain fairly tight.
“The combination of better-than-expected ADP and lower-than-expected-jobless claims was enough to inspire a little bit of selling pressure on Treasuries,” said Ben Jeffery, a U.S. rates strategist at BMO Capital Markets in New York.
The reports “definitely moderate the odds of a near-term rate cut from the Fed just given the fact that the job market remains in a relatively good place,” he said.
The yield on the benchmark 10-year Treasury note rose 8.2 basis points to 3.99% while MSCI’s gauge of stocks across the globe gained 0.31%, lifted by advances in Europe and a rebound in the and Dow industrials .
Minutes from the U.S. central bank’s December policy meeting offered few clues on when the Fed might start cutting rates. Traders see a 66.4% chance for at least a 25-basis point (bps) rate cut in March and almost a 94% probability in May, according to the CME Group’s (NASDAQ:) FedWatch.
Fed policymakers have indicated they expect three rate cuts this year. Futures traders have trimmed the total estimated reduction by December to 141 bps from expectations of more than 160 bps late last year.
Data in Europe was encouraging as lower PMI readings from most of the euro zone’s top economies was largely expected. But both German and French inflation surveys showed prices moving up again, bolstering forecasts that euro zone-wide inflation rose back to 3% last month.
The data reversed early declines in European bond yields and also stretched the euro’s lead for the day over the dollar to leave it up 0.29% to $1.0953. The was mostly flat, down 0.039%.
MUFG analyst Lee Hardman said that if anything, the PMI data had been a touch stronger than expected and that the Fed’s minutes on Wednesday had largely strengthened the view that its rates would start falling this year.
“I don’t think the pushback (on expectations of rate cuts) was as strong as some people were fearing. That has certainly contributed to the renewed weakness in the dollar,” he said.
Morgan Stanley analysts told clients the bank had now moved to a “neutral” stance on the dollar after its bullishness of recent months.
Against the Japanese yen, though, the greenback rose to a two-week peak of 144.87 yen, having also jumped nearly 1% the previous day.
HCOB’s Composite Purchasing Managers’ Index (PMI), a survey-based gauge of the euro zone’s economic health, was revised up for December to match November’s 47.6 after an earlier estimate of 47. It was still below the 50 mark separating growth from contraction.
The German 10-year yield, the euro zone benchmark, was last up 9.6 basis points (bps) at 2.112% having hit a one-year low of 1.896% last week. France’s yield inched up as well, to 2.642%.
Asian shares eked out a modest gain overnight, having dipped early on after Wall Street closed lower on Wednesday. However finished lower on its first trading day of the year.
Oil retreated, unwinding an earlier rally, as concerns over Middle Eastern supply and disruptions at an oilfield in Libya were countered by concern about economic growth and demand.
fell 0.51% to $72.33 per barrel and was at $77.79, down 0.59% on the day.