Wall Street climbs as investors welcome release of US initial jobless claims report. At 16.05 Italian time, the Dow Jones rose by more than 130 points (+0.40%), the S&P 500 advanced by 0.54%, the Nasdaq scored a rise of 0.74%.
At a time when “bad news is good news”, i.e. when the bad news coming from the macroeconomic front is positive news for the markets – as it dampens expectations of too aggressive rate hikes by the Fed – the numbers from the US labor market manage to appease the anxiety of investors, which has exploded in recent days with the words of the number one of the American central bank, Jerome Powell, during the two hearings in the Senate and in the US House of Congress.
From the macro front of the United States, the report on unemployment benefits was released, from which it emerged that, in the week ending March 4, the number of American workers who applied for the first time, in order to obtain benefits unemployment, rose 21,000 to 211,000, well above the 195,000 expected by economists polled by Dow Jones, and to a 2023 record level.
The four-week moving average also rose, marking an increase of 4,000 to 197,000, while the number of workers still receiving benefits advanced by 69,000 to nearly 1.72 million, a record level since January 2022, therefore in more than a year.
The data surprised investors, who in the last few sessions, aided by Powell’s words, have concentrated their attention rather on the signals which confirmed the solidity of the economic fundamentals of the United States.
In yesterday’s session, the US stock indexes closed mixed, managing to avoid the plunge of the previous session, which had seen the Dow Jones collapse to almost -600 points, eliminating the increases reported since the beginning of 2023 and the S&P 500 slipping below the threshold of 4,000 points.
Yesterday, the Dow closed down 58.06 points, or 0.18%, at about 32,798 points; the S&P 500 rose 0.14% to 3,992 points, while the Nasdaq closed up 0.40% to 11,576.
Waiting at this point for the big market crucial for Wall Street and for world equities, which will be announced tomorrow, Friday 10 March, at 2.30 pm Italian time, and which will give more precise indications to Powell’s Fed, therefore to the markets, on the future direction of rate hikes.
This is the February US employment report, which will indicate the growth of new jobs and the unemployment rate in the United States, perhaps also clarifying the data published today.
Over the past two days, referring to a stronger-than-expected economy, Fed Chairman Jerome Powell made it clear in his congressional hearing that rates could rise higher than anticipated, due to the need to stop the growth of inflation, which is still too strong. Yesterday Powell spoke for the second time, during a hearing before the House Financial Services Committee.
The central banker specified that no decision had been made regarding the extent of the rate hike that will be announced at the next meeting of the FOMC, the monetary policy arm of the central bank.
That said, as Main Street Research chief investment officer James Demmert commented on CNBC, “the market is finally realizing that interest rates will stay high and that the idea of a Fed pivot is wishful thinking.”
“The global economy – continued Demmert – is more resilient than you think, a factor that will make inflation more stubborn, driving up the Fed’s terminal rate target. Inflation has fallen but is far from the Fed’s target equal to 2%, which means that there is still a lot of work to be done, given the stubborn strength of the economy and the inflation represented by wages”.
Today’s data relating to initial claims for unemployment benefits, however, confuses operators, who today decide in any case to focus on the positive side of the “bad news”, i.e. on the fact that, probably, the US labor market is not so solid to endorse more excessive monetary tightening by the Fed.
The publication, yesterday, of the
Private Sector Employment Report by ADP Corporation.
The data showed that the US economy created 242,000 new private sector jobs last month, on top of the 205,000 growth expected by economists polled by Dow Jones, following an increase of 119,000 new jobs in January (revised data upwards).
The ADP report thus highlighted, for the umpteenth time, the solidity of the American labor market; a positive factor in itself, which however contrasts with the objective of Powell’s Fed: that of dampening the solidity of the economic fundamentals to the point of being able to reduce even the rate of growth of inflation, which is still too high.
Tomorrow’s US employment report is the crucial market mover that will determine the trend of global stock markets in the coming sessions.
After the boom shock in January, when 517,000 new jobs were created in the United States, economists polled by Dow Jones expect an increase in new jobs in February of 225,000 units.
Attention remains focused on the US yield curve, after the negative spread between 2-year Treasury rates and 10-year rates tested its highest value since 1981, confirming the strongest curve inversion since that year , after the words of Powell.
In Tuesday’s session, two-year US government bond rates jumped to over 5%, to 5.08%, a record high since mid-2007, while ten-year rates returned to above the 4 threshold %, around 3.95%
At present, 10-year Treasury rates are down below 4%, around 3.95%, while two-year US government bond rates are down to 4.975%, reflecting the surprise that came with the publication of the report on unemployment.