News from the Financial Associated Press, January 6 (edited by Xiaoxiang)For Wall Street, the most critical economic data in the first week of the new year is undoubtedly the U.S. December non-farm payroll report to be released tonight. However, before this high-profile data came out, several fiery non-agricultural “forward-looking” indicators seemed to have scared the market in advance——Both U.S. stocks and Treasuries fell sharply on Thursday, while the dollar strengthened further, as a number of economic data showed that the U.S. labor market remained strong, strengthening investors’ expectations that the Federal Reserve will continue to raise interest rates to curb inflation.
According to market data, the S & P 500 index fell 44.87 points, or 1.2%, to 3808.10 points on Thursday. The Dow fell 339.69 points, or 1%, to 32,930.08. The Nasdaq Composite fell 153.52 points, or 1.5%, to 10305.24. All three major stock indexes erased gains from the previous session.
Of the 11 major S&P 500 sectors, only energy .SPLRCT rose 2 percent. Real estate, utilities and information technology stocks were the biggest losers. Judging from the trend of U.S. stock futures, the market was significantly affected by the U.S. employment data that day.
Also under pressure overnight was the bond market, with U.S. bond yields across maturities generally higher on Thursday. in. It rose 10.2 basis points to 4.47%, rose 7 basis points to 3.922%, the 10-year U.S. bond yield rose 2.9 basis points to 3.725%, and the 30-year U.S. bond yield fell 1 basis point to 3.797%.
It is worth noting that the 2-year U.S. bond yield, which is currently most closely related to the Fed’s interest rate expectations, has set a new high since November last year.The inversion between the 2-year and 10-year U.S. bond yields reached -75.5 basis points overnight, the largest inversion in three weeks.
Judging from the trading of U.S. bond futures, as of the end of the New York session that day, the futures trading volume was 22% higher than the average level of the past 20 days, and most of the trading activities occurred in the two-year and five-year short-to-medium term on the U.S. bond contract.
“Small non-farmers” startled ripples with their initial invitations
According to data released by the American Automatic Data Processing Corporation (ADP) on Thursday, the number of private sector employment in the United States increased by 235,000 in December last year, which was not only much higher than the previous market expectation of 150,000, but also almost the increase of 127,000 in November. nearly double.That suggests the U.S. labor market remains tight despite signs of an economic slowdown.
The performance of the ADP data supports the core view expressed in the minutes of the Federal Reserve’s December meeting released on Wednesday that labor market conditions in the world‘s largest economy are exacerbating upward pressure on wages and prices. “Despite the tightening policy the Fed has implemented so far, it still sees a tight labor market that is inconsistent with price stability,” said Michael Gapen, an economist at Bank of America.
Meanwhile, data from the Labor Department on Thursday showed initial jobless claims fell to 204,000 in the final week of December from a revised 223,000 the previous week.Continuing claims for unemployment benefits also fell through the prior week.
The data suggest that the labor market, while cooling in some quarters, remains strong overall.Despite fears of a looming recession, demand for labor far exceeds supply, continuing to put upward pressure on wages and underpin consumer spending. In addition, layoffs remain extremely low and job vacancies remain high.
Financial website MarketWatch pointed out that the US labor market is still too strong for the Fed. The Fed is concerned that labor shortages will push up wages and make it harder to reduce high inflation. The bank would like to see a further slowdown in hiring, easing upward pressure on wages.
After the most important “leading” indicators before the release of the two major non-agricultural data overnight released hot signals in the labor market, both the US stock and bond markets were under obvious pressure. The interest rate market’s pricing of the Fed’s peak interest rate next year has quickly climbed to more than 5%, the highest since the release of the US CPI data last month.
“The market has been looking for signs of easing in employment tensions, and they’ve just been hard to find,” said Ellis Phifer, managing director of fixed income research at Raymond James in New York. “Both jobs numbers were stronger than expected on Thursday, casting doubt on the Fed’s shift. I still can’t figure out why anyone would think the Fed would shift policy now.”
At present, industry insiders will obviously pay close attention to the December non-farm payrolls data due to be released tonight. Economists surveyed by the media expect non-agricultural employment to increase by 200,000 in December, down from 263,000 in November, and the unemployment rate may remain at 3.7%.It is worth noting that the non-agricultural employment data has exceeded market expectations in the past 8 releases. Combined with the excellent performance of yesterday’s “small non-agricultural” and initial application data, it is inevitable that people will be optimistic about tonight’s non-agricultural data line.
Federal Reserve officials expressed their overall hawkish attitude, but the wording of the “Eagle King” has changed subtly
In addition to economic data, several Fed officials also delivered their first public speeches in 2023 overnight.Overall, their rhetorical stance remains hawkish. But among them, the Federal Reserve’s “Eagle King” Bullard’s statement did not seem to be as hawkish as people imagined. This also caused the stock and bond market to stage a short-term rebound in the intraday due to Bullard’s speech.
The first Fed official on Thursday was Kansas City Fed President Esther George. The traditional Fed hawk who surrendered his FOMC voting rights this year said that the Fed will maintain interest rates until 2024, and once the rate hike is over, maintaining interest rates will be the key.
George pointed out, “I have raised my forecast to above 5%, and I still think it will stay at this level for a while until we get a signal that inflation is really convincingly starting to fall back towards the 2% target level. We The area that’s really seeing inflation at the moment seems to be the services non-housing sector of the economy, so I think that’s going to be where we really need to look for clues as to whether our policies in that area are working.”
Atlanta Fed’s Raphael Bostic also said on Thursday that U.S. inflation is “surprisingly high” and remains the biggest headwind in the U.S.
He reiterated that he and his colleagues remain determined to bring price gains down to the target range. “I am content with recent reports showing a slowdown in price pressures, but we still have a lot of work to do. I am sure my colleagues at central banks around the world agree with me.”
The most watched speech by a Fed official overnight was St. Louis Fed President James Bullard, who has been known as the “Eagle King” for the past year.In a speech to the CFA Institute in St. Louis, Bullard was quite positive, saying that the Fed has already taken aggressive action in 2022, and with further policy rate increases planned for 2023, inflation expectations will return to the 2% policy target. consistent level.
However, it is quite interesting that although Bullard himself did not give a clear expectation of the final interest rate, or express his views on the Fed’s further actions in early February. But his PPT suggested that the median expectation of Fed officials for the end of this round of rate hikes (5.1%) in December last year was sufficient to control inflation.
Bullard emphasized that the policy rate is not yet in an area where it might be considered restrictive enough, but it is getting closer. After Bullard’s speech, the three major U.S. indexes rose significantly from intraday lows.
Judging from the latest interest rate dot plot released by the Federal Reserve in December, 17 of the 19 Fed officials expect interest rates to exceed 5% by the end of 2023, and two of the most hawkish officials even expect interest rates to exceed 5.5%. Judging from the currently known information, Kashkari, the chairman of the Minneapolis Fed who holds voting rights this year, expects the peak interest rate to rise to 5.4%, which is one of the five points in the second gear of hawkishness. It is still unknown which two officials are the two most hawkish points…