(Bloomberg) — U.S. equities slumped after the vice-chair of the Federal Reserve suggested rates could rise at the end of next year and mixed economic data for July showed U.S. companies adding far fewer jobs than expected.
The yield on the 10-year U.S. Treasury note fell as low as 1.13% before rising to nearly 1.2%, gold pared back a more than 1% increase, and the dollar was stronger after initial weakness.
The Fed’s Richard Clarida said the central bank was on track to begin increasing interest rates in 2023, if the economy performs as expected. The comments came after a worse-than-estimated ADP employment report was at odds with record growth in an ISM services index, indicating persistent hiring challenges despite improvements in the economy.
The S&P 500 fell, deepening losses after General Motors Co. missed profit estimates, while the Nasdaq 100 was little changed with technology stocks outperforming.
“After losing 19.6 million jobs in March and April last year, we’ve since added back 13.1 million,” Peter Boockvar, chief investment officer for Bleakley Advisory Group, wrote in a note. “I really don’t like to use the word ‘stagflation’ but we have a form of it now, unfortunately, which will make the job of the Federal Reserve even that much more difficult.”
The Stoxx Europe 600 index held on to a fresh record, with technology stocks leading the advance. The travel and leisure sector also outperformed as shares of online gaming companies recovered after Chinese state media toned down their criticism of the industry.
With stocks in Europe and the U.S. at or around record highs, equities have weathered the spread of delta virus variant as expectations for continued central-bank stimulus and solid earnings have propelled shares higher. However, risks still remain.
“With the rise of the coronavirus variants raising questions about second half growth, there is now a rising concern that the earnings we’ll see in the second half will slow from the fabulous growth we saw in the first half of the year,” wrote Matt Maley, chief market strategist for Miller Tabak + Co. “If that is the case, it will be a lot harder to justify today’s extremely high valuation levels.”
The mood in Asia is more somber, with analysts reviewing economic growth projections for China as officials there grapple with the broadest Covid-19 outbreak since the beginning of the pandemic. Equities rallied in Hong Kong but slipped in Japan, where SoftBank Group Corp. retreated on a potential block of its $40 billion sale of Arm Ltd. to Nvidia Corp. Investors are also assessing regulatory risks of China’s crackdown on technology giants. Alibaba Group Holding Ltd.’s revenue missed estimates for the first time in over two years, a sign of the clampdown’s toll.
Oil fell to around $68 a barrel. Bitcoin rose to about $39,000.
Here are some key events to watch this week:
Bank of England is expected to keep its benchmark interest rate and its bond-buying target unchanged ThursdayReserve Bank of India monetary policy decision, briefing FridayThe U.S. jobs report is expected to show another robust month of hiring Friday
For more market analysis read our MLIV blog.
These are the main moves in markets:
The S&P 500 fell 0.4% as of 12 p.m. New York timeThe Nasdaq 100 was little changedThe Dow Jones Industrial Average fell 0.8%The Stoxx Europe 600 rose 0.6%The MSCI World index was little changed
The Bloomberg Dollar Spot Index rose 0.2%The euro fell 0.2% to $1.1842The British pound was little changed at $1.3912The Japanese yen fell 0.4% to 109.43 per dollar
The yield on 10-year Treasuries was little changed at 1.17%Germany’s 10-year yield declined two basis points to -0.50%Britain’s 10-year yield was little changed at 0.51%
West Texas Intermediate crude fell 3.5% to $68.08 a barrelGold futures were little changed
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