(Bloomberg) — U.S. stocks sank after job vacancies data showed the Federal Reserve had more room to raise interest rates to curb inflation, a determination several central bank officials echoed in the past few days.
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The S&P 500 and the tech-heavy Nasdaq 100 fell for a third straight day. Treasuries tumbled after an unexpected rebound in consumer confidence in August sparked a sell-off and pushed the two-year interest rate to a new multi-year high.
Three regional Fed presidents, in separate remarks Tuesday, reiterated Chairman Jerome Powell’s intent to reduce inflation. Swaps that refer to the Fed’s September meeting are now pricing in more than a 70% chance of a three-quarters percentage point hike. Tuesday’s job vacancies data added to signs that the labor market remains tight and wage pressures persist. Jobless claims will be released on Thursday ahead of the August payrolls report on Friday.
“Friday’s fallout will make us extremely sensitive to a lot of the incoming data, especially around employment,” said Sean Kruse, chief trading strategist at TD Ameritrade. “Unsurprisingly, the receipt of the consumer sentiment data today and the JOLTS data had quite a strong reaction in the markets. That’s probably what you should expect between now and the Fed’s September meeting, specifically anything around employment. So this week is probably going to be quite volatile.”
Analysts remain divided on what the latest remarks by Fed officials and upcoming stock data might mean. While Credit Suisse Group AG advised investors to bear global stocks after the Jackson Hole symposium, strategists at JPMorgan Chase & Co. say US labor market data that spells bad news for the economy is actually a bullish signal for stocks.
Meanwhile, bonds are sliding into the first bear market in a generation, burning investors who erred on bets that central banks would shy away from rapid rate hikes.
This week, the Federal Reserve is also set to increase the spread of its nearly $9 trillion balance sheet. The impact of quantitative easing will be relatively benign in the first six to 12 months, but could begin to have a stronger effect on the economy around the middle of next year, Jeff Schulze, investment strategist at ClearBridge Investments, said in an interview.
Other risks range from China’s economic slowdown to an energy crisis that threatens to tip Europe into recession as winter approaches.
Here are some key events to watch this week:
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ECB Governing Council members are due to speak at the event from Tuesday to September 2
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China PMI, Wednesday
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Eurozone CPI, Wednesday
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Russia’s Gazprom will halt gas flows on the Nord Stream pipeline for three days of maintenance on Wednesday
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Cleveland Federal Reserve President Loretta Mester is scheduled to speak on Wednesday
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China Caixin manufacturing PMI, Thursday
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US non-farm payrolls, Friday
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The UK leadership vote closes on Friday. The winner is announced on September 5
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Some of the major moves in the markets:
Stock up
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The S&P 500 was down 1.4% as of 1:30 p.m. New York time
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Nasdaq 100 down 1.7%
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Dow Jones Industrial Average fell 1.2%
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MSCI world index fell 1%
Currencies
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The Bloomberg Dollar Spot index rose 0.2%
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The euro rose 0.2% to $1.0020
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The British pound fell 0.5 percent to $1.1652
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The Japanese yen was little changed at 138.76 per dollar
Bonds
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The yield on the 10-year note rose one basis point to 3.11%
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Germany’s 10-year bond yield was little changed at 1.51%
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Britain’s 10-year bond yield advanced 10 basis points to 2.70%
Goods
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West Texas Intermediate crude fell 5.9% to $91.27 a barrel
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Gold futures fell 0.8% to $1,735.40 an ounce
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