US stocks tick lower as traders assess outlook for rate rises

Wall Street stocks ticked lower on Monday, adding to losses in the previous session when a hot US jobs report stoked expectations of a more aggressive interest rate rise campaign by the Federal Reserve.

The blue-chip S&P 500 and the tech-heavy Nasdaq Composite were both down 0.2 per cent by mid-afternoon trading in New York, reversing gains in early dealings. Europe’s Stoxx 600 closed 0.7 per cent higher, while Hong Kong’s Hang Seng index dropped 0.8 per cent.

US government debt made gains. The yield on the 10-year Treasury note fell 0.07 percentage points to 2.77 per cent, as the price of the benchmark instrument increased. The policy-sensitive two-year yield fell 0.03 percentage points to 3.22 per cent.

Those moves came after a labour report for the world’s largest economy on Friday showed the unemployment rate returning to a half-century low as employers added 528,000 jobs in July — more than double the 250,000 anticipated by economists.

Those numbers preceded a closely watched US consumer price index report due on Wednesday. Economists polled by Reuters expect headline inflation to have increased 0.2 per cent month over month from June to July, down from 1.3 per cent. Core inflation, which strips out volatile categories including food and petrol, is expected to have risen 0.5 per cent.

The S&P 500 closed 0.2 per cent lower on Friday as traders anticipated that the stronger-than-expected jobs data would encourage the US central bank to lift interest rates further. But the index still gained 0.4 per cent for the week. With the Nasdaq also up 2.2 per cent for the week, this marked the first time since the start of April that both indices made three consecutive weekly gains.

In commodities, Brent crude recovered from earlier losses to gain 1.3 per cent and trade at $96.15 a barrel. That rise came after the international oil benchmark last week posted its biggest weekly drop since April 2020.

“We are in an environment where central bankers have a tough choice: high inflation or the risk of recession. Faced with that choice, central bankers are likely to choose recession,” said Bill Papadakis, a macro strategist at Lombard Odier.

Central banks have in recent weeks shown their willingness to tackle inflation robustly, with the Bank of England, European Central Bank and Fed all introducing sizeable rate rises despite signs of an economic slowdown.

Futures markets indicate that investors are pricing in the possibility of a third consecutive 0.75 percentage point rate rise when Fed policymakers meet in September, although Deutsche Bank analysts point out there would be two further CPI releases before the central bank’s next meeting.

“The monster payrolls report on Friday . . . finally got the message through that the narrative of a dovish Fed pivot . . . was exceptionally premature,” they wrote in a note.

After the dollar made gains on Friday following the jobs report, the greenback slipped 0.2 per cent against a basket of six other major currencies.