Global stocks labour as US jobs slow

Singapore — Stocks struggled to make headway on Wednesday, the dollar nursed losses and bonds clung to gains, as signs of a slowing US labour market made investors nervous about the economic outlook, while a bigger-than-expected rate hike lifted the kiwi dollar.

Asia trade was thinned by holidays in Hong Kong and China, leaving MSCI’s Asia-Pacific index excluding Japan faring little better than flat, while Japan's Nikkei fell 1%.

Overnight, a four-day winning streak for Wall Street indices ended, with all three major indices dropping, and interest rate expectations were dialled down after data showed US job openings hit their lowest level in nearly two years in February.

Two-year treasury yields, which closely track short-term rate expectations, dived almost 15 basis points and the dollar tracked the move to hit two-month troughs.

“The market’s odds of a recession have increased,” said Jamie Dimon, CEO of the US’s biggest bank, JPMorgan Chase, in a letter to shareholders, warning the confidence fears that had rattled banks had not dissipated.

“The current crisis is not yet over,” he said. “And even when it is behind us, there will be repercussions from it for years to come.”

US interest-rate futures have rallied strongly over the last few weeks, as traders figure that under pressure banks will tighten up on lending anyway and save the need for monetary policymakers to do the job.

The latest futures pricing implies a better-than-even chance that the Federal Reserve has finished raising rates, and more than 60 bps in cuts in 2023.

Two-year yields are at 3.8459% and 10-year yields at 3.3517%, with the whole US yield curve below the top of the Fed funds rate window, which is at 5%.

Gold, which pays no yield, hit a one-year high above $2,000/oz overnight.

“Perhaps the Fed sneaks one more [hike] in, but the distribution of probabilities around the policy rate are heavily skewed to the downside,” said NatWest Markets head of economics and market strategy, John Briggs.

“We do not think this is something that is going to change in market pricing anytime soon.”

Dollar squeezed

Outside the US, markets see other central banks staying the course on hikes to tame inflation. A Reuters poll of forex strategists found most expect that to keep pressure on the dollar in 2023.

The Reserve Bank of New Zealand surprised traders with a 50 basis-point hike on Wednesday that sent the kiwi up 1% at one stage to hit a two-month high — a contrast with Australia’s central bank, which paused its hikes on Tuesday.

Elsewhere investors see a few more rate hikes in store in Europe, where German exports have turned surprisingly strong. The euro stood by a two-month high hit overnight on the dollar at $1.0973. The kiwi was last up 0.7% at $0.6355.

China and Asia more broadly are the great hopes for growth.

Japanese data on Wednesday showed services activity grew at its fastest pace in more than nine years in March, though factory output remains weak.

China’s sprawling manufacturing sector lost momentum in March, data showed earlier in the week, though investment inflows hit a record for the first quarter on foreignersˆ optimism that policy support for business lies ahead.

Commodity markets are settling after Monday's surge in oil prices on news of surprise Opec+ production cuts. Brent crude futures were steady at $85.42 a barrel.

Reuters