The dollar saw a slight decline, and global equities faced some pressure on Thursday as investors grappled with U.S. unemployment benefits data that indicated a labor market that still had some tightening to do, coupled with the Federal Reserve’s commitment to maintaining higher interest rates for an extended period.
European stocks managed to recover after experiencing losses over the previous three days. However, on Wall Street, all three major indexes posted declines. Investors closely monitored benchmark Treasury yields, which hovered just below 16-year highs, in anticipation of the highly anticipated U.S. jobs report scheduled for release on Friday.
Oil prices extended the sharp losses observed on Wednesday, reflecting ongoing uncertainty in the demand outlook. The market factored in monetary policy that appeared neither too restrictive nor too expansive.
Mike Sanders, head of fixed income at Madison Investments in Madison, Wisconsin, commented, “The markets have set a little bit higher neutral rate than what maybe the Fed believes it will be. It’s pretty evident that the jobs market and the consumer are doing OK. Claims are still very, very low. If claims are up to mid-250,000 by year’s end, that’s a fairly obvious sign that there’s a loosening of the labor market.”
The Labor Department reported that initial claims for state unemployment benefits increased by 2,000 to 207,000 for the week ending September 30, slightly below the 210,000 claims predicted by economists polled by Reuters.
Long-dated Treasury bonds saw a slight increase, with the benchmark 10-year yield stabilizing after reaching 4.884% in the previous session. Shorter-dated notes, however, experienced a dip.
Baylee Wakefield, a portfolio manager at Aviva Investors, noted, “The question everyone’s asking is: can yields continue to rise further and at what point are yields going to cause some serious damage on the economy? If we’re going to see more positive signs from non-farm payrolls on Friday, then we might get investors worrying a little bit less about seeing higher interest rates going into the end of the year.”
Market expectations indicated a 22.2% chance of a Fed interest rate hike in November, with the U.S. central bank’s overnight lending rate projected to remain above 5% until June 2024.
The dollar index showed a 0.234% decline, with the euro gaining 0.25% at $1.0529. The yen also strengthened by 0.40% against the dollar, reaching 148.50, which was below the 150 mark that could trigger intervention by the Bank of Japan.
MSCI’s global stocks gauge dropped by 0.17%, while Europe’s STOXX 600 index rose by 0.31%, particularly driven by the travel and leisure sector, which was up 1.5% due to expectations of reduced fuel costs benefiting airline stocks.
On Wall Street, the Dow Jones Industrial Average declined by 0.5%, the S&P 500 lost 0.71%, and the Nasdaq Composite dropped 0.85%. All 11 sectors of the S&P index experienced declines, with major growth stocks leading the downturn.
Asian shares managed to rebound from their 11-month lows, following modest gains on Wall Street. However, China’s mainland markets remained closed due to holidays.
European government bond yields exhibited mixed movements, with the 10-year German yield down by 1 basis point at 2.885%. The German yield curve also showed signs of being less inverted than it had been since March.
U.S. crude oil prices fell by 2.03% to $82.51 per barrel, while Brent crude was at $84.15, marking a 1.93% decline for the day. Concerns lingered about whether peak fuel consumption had already occurred, but the market continued to face supply shortages through the end of the year, seeking a balance.
Gold prices experienced their ninth consecutive session of decline, with spot gold dropping by 0.3% to $1,815.27 per ounce.