Largest decline since April in the global stock market

MSCI’s global stock index declined on Thursday, heading for its worst one-day percentage fall since April, while Treasury yields increased as worries that interest rates will rise further were stoked by a spike in U.S. private payrolls.

Payroll provider ADP said that private payrolls increased by 497,000 in June, greatly above experts’ predictions of 228,000 and 267,000 increases, respectively. Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 248,000 for the week ending July 1, according to the Labor Department, although the preceding week’s figures were updated to show 3,000 fewer applications than first reported.

Worries that this might result in a more hawkish central bank have grown as a result. The expectation for prolonged above-target inflation and a stronger-than-anticipated job market, according to Federal Reserve Bank of Dallas President Lorie Logan, “calls for more-restrictive monetary policy.”

The labor market report increased expectations for aggressive Fed rate rises to control persistently rising inflation, which led to a rise in U.S. Treasury rates. After the news, the U.S. dollar’s losses versus other major currencies were reduced, although stock indices were still down overall.

“There’s just a lot of uncertainty right now in terms of how strong the economy is and what the Fed might have to do to try to deal with inflation pressures,” said James Ragan, director of wealth management research at D.A. Davidson.

Despite the fact that ADP’s report is not typically a reliable indicator for the government’s monthly employment statistics, which is scheduled to be released on Friday, the private payrolls numbers were so much higher than anticipated that Ragan expressed fear that the report on Friday will also include positive surprises.

Given that June came to a close strongly, he added, “the market is, at least for today, taking a more conservative view.”

The S&P 500 sank 32.11 points, or 0.72%, to 4,414.71; the Dow Jones Industrial Average dropped 340.82 points, or 0.99%; and the Nasdaq Composite slid 105.76 points, or 0.77%, to 13,685.89.

The global STOXX 600 index ended the day down 2.34%, while the MSCI stock market index saw losses cut to 1.21%. It might have dropped up to 1.7%, which would have been the worst drop in a single day since December.

According to Alex Coffey, senior trading strategist at TD Ameritrade, “all of it paints a picture of a market that’s concerned about the economy and a Fed that is still dead set on tightening monetary policy.”

Coffey said that despite “no signs of deterioration in the labor market,” tighter monetary policy would “all but certainly cause some sort of economic slowdown.”

According to CME Group’s FedWatch tool, money market traders now estimate a 94.9% likelihood of a quarter-point raise at the bank’s July 26 meeting and were betting on a 28.5% possibility of another hike in September, up from a 19.1% chance on Wednesday.

And Ragan of D.A. Davidson pointed out that, in contrast to prior bets for as much as two rate cuts later in 2023, futures imply limited betting on rate reduction until June of 2024.

For the first time since early March, 2-year Treasury rates increased over 5%, reaching their highest levels since June 2007. [GVD/EUR][US/]

Standard 10-year note yields increased 9.2 basis points late on Wednesday, rising to 4.037% from 3.945%. The 30-year bond’s yield recently increased by 5.6 basis points, moving from 3.944% to 3.9997%. The yield on the 2-year note yesterday increased by 5.1 basis points to 5.0017% from 4.951%.

In terms of currencies, the euro increased to $1.0882 while the dollar index decreased by 0.194%. At 144.13 per dollar, the Japanese yen gained 0.35% against the US dollar, while the price of sterling recently changed hands at $1.274, up 0.28% on the day.

As the market processed the increased chance of a U.S. interest rate increase, which might reduce energy demand, tighter U.S. crude supply restricted losses. Oil prices in the energy markets hardly moved.

At $71.80 a barrel, U.S. crude ended the day up one penny, while Brent ended the day at $76.52, down thirteen cents or 0.17%.

Spot gold fell 0.4% to $1,910.09 an ounce in precious metals. American gold futures decreased 0.58% to $1,908.70 per ounce.