US stocks were subdued and short-dated government debt prices dropped on Wednesday, as a strong labour market report added to questions about the future direction of monetary policy.
The blue-chip S&P 500 index dipped before flattening in early afternoon New York dealings, while the technology-focused Nasdaq Composite was up 0.1 per cent after an earlier drop.
Meanwhile, in government bond markets, the yield on the two-year US Treasury note — which is sensitive to fluctuations in monetary policy expectations — rose 0.03 percentage points to 0.64 per cent. The benchmark yield on the 10-year Treasury note was down 0.02 percentage points to 1.65 per cent. Bond yields move inversely to prices.
The greenback strengthened on Wednesday, with the dollar index — measuring the US currency against a basket of six others — rising by about 0.4 per cent. The euro, meanwhile, touched its lowest point against the dollar since June last year, slipping below $1.12.
President Joe Biden’s nomination earlier this week of Jay Powell for a second term as Federal Reserve chair had already jolted the US government bond market, sending the price of short-term debt lower.
Investor concerns have largely centred on expectations that Powell may pursue a slightly more aggressive approach to reining in crisis-era stimulus measures than Lael Brainard, who was seen as his main competitor for the job. Wednesday’s strong US labour market report may add to that sentiment.
State unemployment offices received 199,000 initial jobless claims on a seasonally adjusted basis last week, down from 270,000 the previous week, according to the US labour department. That brought jobless claims to their lowest level since November 1969, and compares with a previous low of 205,000 in February 2020.
Wednesday also brought fresh data on the Fed’s preferred measure of inflation — the personal consumption expenditures price index. Core PCE, a measure that strips out volatile components such as food and energy, rose 4.1 per cent year on year in October to its highest level in three decades, accelerating from 3.7 per cent a month earlier. The latest figure was in line with economists’ expectations, according to a Refinitiv poll.
Data also showed that US consumer spending increased by 1.3 per cent in October from September, surpassing economists’ expectations of 1 per cent.
“Consumers are dealing with higher prices, but they’re still out spending” said Michelle Meyer, head of US economics at Bank of America.
Roger Lee, head of UK equity strategy at Investec, said: “We’ve got an environment now where the market debate has turned to how high can inflation go and what will the Fed’s response be. That’s something that most people in equity and fixed-income markets have never worked in.”
In Europe, the regional Stoxx 600 share index was up just under 0.1 per cent at the close. London’s FTSE 100 gauge rose about 0.3 per cent.
Elsewhere, New Zealand’s central bank on Wednesday raised interest rates by 0.25 percentage points to 0.75 per cent, in a move designed to cool the economy and damp increasing house prices.
Following its second rate rise in two months, the Reserve Bank of New Zealand also issued hawkish guidance on future moves, saying rates would probably need to advance above their neutral level.
In Asia, Hong Kong’s Hang Seng index closed up 0.1 per cent and Shanghai’s CSI 300 index was broadly flat.
Brent crude slipped 0.2 per cent to $82.11 a barrel. Biden on Tuesday authorised the release of 50m barrels of oil — about 2.5 days of US oil consumption — in an attempt to lower petrol prices for consumers.
Additional reporting by Aime Williams in Washington and Matthew Rocco in New York
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