Shares jump, US yield curve reverses after strong job data

  • US stocks fall, Treasury yield curve reverses
  • U.S. employers added 431,000 jobs in March
  • US unemployment rate of 3.6%
  • Eurozone inflation 7.5% in March
  • Oil is heading for a 13% drop this week

NEW YORK, April 1 (Reuters) – Government bond yields resumed their upward rise on Friday as a significant portion of the US yield curve was reversed on signs of sustained inflation, while falling oil prices ended the week with their sharpest weekly fall in two years.

U.S. data released Friday showed employers added 431,000 jobs in March, and the unemployment rate fell to 3.6%, continuing a strong hiring round that has left key aspects of the U.S. labor market “slightly different” than where they were before the COVID-19 pandemic. Read more

With US economic growth so robust and inflation running at three times the Federal Reserve’s target of 2%, investors are largely expecting a drum roll of interest rate hikes this year.

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Government interest rates, which retreated earlier in the week as portfolio adjustments boosted demand for bonds, rose again on Friday, causing a closely monitored portion of the yield curve to reverse for the third time this week.

An inversion of the yield curve, when the shorter returns rise over the longer ones, is seen as a warning of a recession in the next one or two years.

“Today’s solid growth in the payroll marked the box for the Fed in its efforts to fight inflation,” said Rick Rieder, BlackRock’s chief investment officer for global interest rates. “As a result, the Fed clearly appears unafraid to achieve at least political neutrality and is likely to make at least one and maybe two 50 basis point rate hikes before the June … meeting, which could even include an inter-meeting increase.”

Bets that aggressive monetary tightening could be in the cards did not pull stock markets down on Friday.

US stocks ended higher after a choppy session. The Dow Jones Industrial Average (.DJI) rose 0.4%, the S&P 500 (.SPX) rose 0.34% and the Nasdaq Composite (.IXIC) rose 0.29%.

The pan-European STOXX 600 Index (.STOXX) rose 0.54% and MSCI’s Global Acquisition Index (.MIWD00000PUS) rose 0.16%.

Inflation in Europe is also running at record highs, with inflation in the euro area reaching 7.5% in March, data showed on Friday, another record high with months left before it is set to peak, increasing pressure on the European Central Bank to to act to limit prices, even if growth slows sharply. Read more

In response, the German 10-year government bond yield, a benchmark for the euro area, rose 2.8 bps to 0.58%, after jumping 39 bps in March, the largest monthly increase since 2009. read more

“Government bond yields have risen sharply in recent weeks and can be expected to rise over time due to inflationary pressures that have come to stay and reactions from key central banks,” Christian Nolting, global investment director at Deutsche Bank Private Bank, said in a statement. note.

Two-year government interest rates jumped to 2.4503% from 2.284%, which exceeded the benchmark 10-year US government interest rates, which also rose to 2.3767% from 2.325%.

“Given its impressive track record in predicting US recessions – it’s almost 50 years since the last false positive – it would seem silly to doubt the bearish recession speculation,” said Paul Ashworth, North American chief economist at Capital Economics.

“Historically, however, the 10-month spread of three months (interest on the Treasury) has done a better job of signaling downturns than the 10-year spread of two years, and the former is still close to 200 basis points,” Ashworth added.

World shares since COVID

In Tokyo, the Nikkei (.N225) fell 0.56%, recording a weekly decline of 1.7%.

Interruptions in supply and rising raw material costs boosted Japanese business confidence to a nine-month low in the last quarter. Read more

Chinese blue chips (.CSI300) rose 1.27%, helped by hopes of easing.

The oil plunged in and out of negative territory ahead of a meeting of International Energy Agency member states to discuss the release of emergency oil reserves along with a huge planned release of the United States.

U.S. crude fell 0.95% to $ 99.33 a barrel, and Brent was at $ 104.38, down 0.32% on the day.

For the week, Brent has fallen 13.5%, the sharpest fall in almost two years, after a previous increase driven by Russia’s invasion of Ukraine had seen prices rise by more than 30%.

The dollar has benefited from safe harbor flows and expectations of rising US interest rates. Compared to a basket of peers, the dollar rose 0.23% to 98.546 and it rose 0.6% against the yen to 122.49.

The euro fell slightly to $ 1.1051.

Safe-haven gold fell 0.76% after its biggest quarterly growth in two years. Spot gold was last listed at $ 1,923.73 per ounce.

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Further reporting by Andrew Galbraith in Shanghai, Tom Westbrook in Singapore and Saikat Chatterjee in London; Editing Simon Cameron-Moore, Will Dunham, Catherine Evans, Barbara Lewis and Nick Macfie

Our standards: Thomson Reuters Trust Principles.

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