Stocks rise as weak economic data sinks US yields: Markets Wrap

(Bloomberg) — Wall Street traders sent stocks higher and bond yields lower as a series of weaker-than-expected economic reports reinforced the need for the Federal Reserve to start cutting rates this year.

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In a shorter session ahead of the U.S. holiday, the S&P 500 headed for a new record on bets that policy easing will continue to fuel corporate America. Treasuries rose as data showed the U.S. services sector contracted at the fastest pace in four years, private payrolls increased at a moderate pace and continuing claims for unemployment benefits rose for a ninth straight week.

For Win Thin and Elias Haddad of Brown Brothers Harriman & Co., if the data cooperates, a Fed cut in September is “very much in play.”

“Bad news is good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted after today’s U.S. data releases, which all came out weaker than expected.”

Traders will get more insight into the state of the labor market on Friday with the June employment report. Economists anticipate a gain of 190,000 in nonfarm payrolls — a step down from the previous month — with the unemployment rate holding steady at 4%.

Yields on the 10-year Treasury fell seven basis points to 4.36%. Swap traders are projecting nearly two rate cuts in 2024, with the first in November — though bets on a September reduction have increased. The dollar was headed for its biggest drop since mid-May.

The S&P 500 rose to around 5,520. Tesla Inc. extended its rally to a seventh straight session. Amazon.com Inc. fell. The stock market is set to close at 1 p.m. New York time on Wednesday, while the recommended close for Treasuries is 2 p.m. — when the Fed minutes are released.

“Bulls are facing little opposition as most bears have capitulated, and seasonality and fund flows provide a tailwind,” said Mark Hackett at Nationwide. “Clouds are developing on the macro backdrop, most notably in consumer data, but investors’ glass-half-full mentality continues to drive markets higher.”

A survey conducted by 22V Research shows that 40% of investors think the market reaction to Friday’s jobs data will be muted/mixed, with 34% saying “upside risk” and 26% saying “downside risk.”

“Investors are paying more attention to payrolls,” said Dennis DeBusschere at 22V. “The focus on wage growth has eased a bit, which is a bit surprising given Powell’s explicit focus on wages yesterday. He said services inflation, which has been sticky, is dependent on wages.”

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The 22V survey also showed there was a positive skew in unemployment rate assumptions. That’s consistent with the risk the Fed pointed out, the firm said.

Fed Chairman Jerome Powell said Tuesday that the latest economic data suggests inflation is returning to a downward path, but stressed that officials need more evidence before cutting interest rates. When asked what keeps him up at night, he pointed to the delicate balance between taming inflation and avoiding a significant deterioration in the labor market.

“Until employment weakens significantly, there remains fundamental support for the U.S. economy, although there is some evidence of a slowdown,” said Don Rissmiller at Strategas. “Fed officials have indicated they want to see more progress on inflation — fortunately, the U.S. economy still looks robust enough currently to take an extended pause on rates. But the clock is ticking.”

Meanwhile, New York Fed Bank President John Williams, who has researched the natural interest rate known as r-star in depth, pushed back against recent comments that it has risen since the pandemic.

The idea of ​​a natural long-term interest rate, which prevails when the economy is not responding to shocks and is growing at its potential, is central to monetary policy but cannot be directly observed. Authorities aim to raise rates above the neutral level to cool the economy and combat inflation.

Corporate Highlights:

• Paramount Global has taken a leap forward after a merger deal with independent film and TV producer Skydance Media was revived.

• Jeff Bezos unveiled a plan to sell an additional 25 million shares of Amazon.com Inc., worth $5 billion, on the day the stock hit a new record.

• Novo Nordisk A/S’s top-selling diabetes and weight-loss drugs, Ozempic and Wegovy, appear to be linked to a higher risk of a rare form of vision loss, according to an analysis by doctors at Massachusetts Eye and Ear, a Harvard-affiliated hospital.

• Southwest Airlines Co. has adopted a shareholder rights plan to defend itself against a push for a leadership overhaul by activist firm Elliott Investment Management.

• SoftBank Group Corp. hit a record high, a vote of confidence in Masayoshi Son’s ambitions to ramp up investment in AI and semiconductors.

• Trading house Trafigura Group Pte Ltd has bought a gas-fired power plant in the US, part of a growing wave of traders flocking to supply power to volatile electricity markets.

Main events of this week:

• UK General Election, Thursday

• US Independence Day Holiday, Thursday

• Eurozone retail sales, Friday

• US jobs report, Friday

• Fed’s John Williams speaks Friday

Some of the main movements in the markets:

Actions

• The S&P 500 was up 0.2% as of 11:52 a.m. ET.

• The Nasdaq 100 rose 0.5%

• The Dow Jones Industrial Average fell 0.2%

• The Stoxx Europe 600 rose 0.7%

• MSCI World Index rose 0.5%

Coins

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro rose 0.5% to $1.0797

• The British pound rose 0.6% to $1.2763

• The Japanese yen was virtually unchanged at 161.50 per dollar.

Cryptocurrencies

• Bitcoin fell 2.9% to $60,130.56

• Ether fell 3.5% to $3,296.75

Titles

• The yield on the 10-year Treasury note fell seven basis points to 4.36%

• The yield on German 10-year bonds fell two basis points to 2.59%

• The yield on 10-year UK bonds fell eight basis points to 4.17%

Commodities

• West Texas Intermediate crude rose 0.3% to $83.02 a barrel

• Spot gold rose 1.4% to $2,363.02 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from John Viljoen, Sujata Rao and Winnie Hsu.

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