ASX set for bright start as Wall Street surges; oil jumps

The yield on the 10-year Treasury rose to 3.01 per cent from 2.91 per cent late Wednesday. The yield on the two-year Treasury is above the 10-year yield, a relatively rare thing seen by some investors as an ominous sign.

The job market in the US has been a key focus for investors this week as they look for any clues on how inflation is impacting the economy. On Wednesday, the US government reported that employers advertised fewer jobs in May amid signs that the economy is weakening and there are already signs that retailers have pulled back on hiring.

A weakening of the broader job market, which has remained strong through the pandemic recovery, could signal that inflation is cooling off. Investors will get a clearer picture on Friday when the more detailed June jobs report is released.

“That’s what the Federal Reserve wants it to do, they’re actually thinking that their policies are working because they are increasing slack in the labor markets,” said Zachary Hill, head of portfolio management at Horizon Investments. “As we look to tomorrow and think about how markets should be reading the report, seeing a deceleration in the pace of job growth is a positive in a sense.”

Investors are trying to determine whether a recession is on the horizon as the Fed aggressively raises interest rates to temper pervasive inflation.

Businesses are getting squeezed by higher costs because of supply chain problems and have raised prices on everything from food to clothing.

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Consumers have been pulling back on spending as inflation puts a tighter squeeze on budgets. Russia’s invasion of Ukraine in February sent energy prices surging in 2022, resulting in record gasoline prices in the US Pain at the pump has only worsened the broader impact from inflation, though there are signs that gasoline prices have begun to recede.

The key concern is that the Fed’s interest rate hikes could go too far in slowing economic growth and actually bring on a recession. After last month’s meeting, the Fed raised its rate by three-quarters of a point to a range of 1.5 per cent to 1.75 per cent — the biggest single increase in nearly three decades — and signalled that further large hikes would likely be needed.

The recession concerns have been weighing heavily on markets. Every major index is in a slump for the year and the benchmark S&P 500 is in a bear market, or down at 20 per cent from its most recent high. The market is not likely going to regain ground until Wall Street gets clearer signals that inflation is cooling.