Following significantly better-than-expected increase in March U.S. payrolls, which had investors scrambling to reevaluate when to drop interest rates, the dollar and bond yields jumped on Friday.
Increase In U.S. Treasury Yields
Rate reduction may be postponed as the U.S. Labor Department revealed that nonfarm payrolls rose by 303,000 in March, much exceeding the 200,000 gain predicted experts.
On the assumption that the Fed would not be in a hurry to lower rates, U.S. Treasury yields increased, and U.S. interest rate futures reduced the likelihood of a rate reduction in June to 54.4%.
Shares have risen to all-time highs on expectations that the Fed will start a cycle of rate decreases in June. “It puts expectations for rate cuts out.
The global head of FX at Jefferies in New York, Brad Bechtel, stated that the market is already pricing in September and that the dollar will continue to be supported.
After the three major U.S. indexes sank more than 1% apiece on Thursday due to hawkish remarks from the Federal Reserve and tensions in the Middle East, U.S. stock index futures were initially hammered by the jobs data.
However, they soon recovered and began to trade higher. Now that payrolls are out, investors will be refueling their Fed bets with next week’s U.S. CPI inflation data for March.
Despite the data, gold continued to rise for the third week in a row, supported by flows into safe havens.
The MSCI All Country stock index, which peaked on March 21 at 785.62 points, eased in the first week of the quarter and was down 0.4% at 770.2 points.
The STOXX index of 600 European companies fell to a level that was above two weeks ago, putting the benchmark on course for its lowest day since mid-October.
After reaching a lifetime high of 515.77 points on Tuesday, it was down 1% at 505.45 points.
Inflation Continue To Hit
Rate reduction were expected to start at some point this year, as evidenced by the U.S. services sector’s cooling and Fed Chair Jerome Powell’s remarks this week.Some Fed members, however, have adopted a more conservative approach.
Neel Kashkari, the president of the Minneapolis Fed, in particular, adopted a more hawkish posture overnight, stating that rate reduction might not be necessary this year if inflation continues to stagnate.
According to Mark Ellis, CEO of Nutshell Asset Management, the markets seem to be in a healthy retreat thus far after grinding upward within a fairly narrow trendline, which left the market appearing a little stretched.
He was referring to an increase in the VIX, the “fear gauge” used by Wall Street, which closed on Thursday at its highest level since November 1.
