Marketmind: Data-hit bond markets end summer lull
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[July 07, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
The seeming serenity of June markets has finally been broken by summer
storms as a blistering selloff in bonds snowballed following news of
buoyant U.S. job creation last month that stiffens expectations for more
interest rate rises.
A trio of U.S. readouts on the state of employment on Thursday showed
almost half a million increase in private sector payrolls in June -
almost twice analysts' forecasts.
While data also showed weekly jobless claims ticking higher and job
openings easing somewhat in May, the rate of job 'quits' was also up -
underlining the tightness of the labor market that's making the Federal
Reserve so uncomfortable about getting inflation back to 2% target.
On top of that, there were signs that activity at dominant U.S. service
sector firms picked up steam again last month too.
Friday's release of the Labor Department's monthly national payrolls
report will seal the picture.
The fear at the Fed is that the wider economy is rebounding again with
inflation rates still twice where it wants them. "I remain very
concerned about whether inflation will return to target in a sustainable
and timely way," Dallas Fed chief Lorie Logan said on Thursday.
With futures markets reflecting more than an 80% chance of another
quarter-point Fed hike later this month and almost a 50-50 chance of a
further one by November, two-year government bond yields everywhere
soared.
U.S. Treasury yields hit 16-year highs above 5%, German equivalents hit
their highest in 15 years and British gilt yields scaled 2008 peaks. The
selloff was across the curve; 30-year Treasury yields topped 4% again to
stalk the year's highs while 30-year gilts were on course for their
biggest one-day hit since the UK budget farce of last autumn.
The S&P500 had its worst day since May and world stocks their biggest
daily loss since April.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., July 6, 2023.
REUTERS/Brendan McDermid
The VIX gauge of implied Wall St volatility - which had been
peculiarly subdued right through last month - jumped to its highest
since June 1.
Markets have calmed slightly as they await Friday's payrolls for
confirmation. Hong Kong's benchmark Hang Seng Index lost almost 1%
and Japan's Nikkei more than that as they aped Thursday selling
overseas - but European bourses and U.S. futures held steady on
Friday and the VIX dialled back a bit.
Crucially, 2-year Treasury yields edged back below 5%.
Elsewhere, Treasury Secretary Janet Yellen's trip to China so far
shows few signs of new breakthroughs in tense relations between the
two economic superpowers.
And in social media wars, Elon Musk's Twitter looks set to sue Meta
over its launch this week of a rival platform called Threads.
Events to watch for later on Friday:
* U.S. June employment report; Canada June employment report
* Dallas Federal Reserve President Lorrie Logan speaks
* European Central Bank President Christine Lagarde and Bundesbank
chief Joachim Nagel speak; Bank of England policymaker Catherine
Mann speaks in New York
* NATO leaders gather for a summit in Vilnius
(By Mike Dolan, editing by Emelia Sithole-Matarise mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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