Many traders are bracing for the Fed to raise rates again at its next meeting in two weeks, but the hope is that may be the last for a while.
A report released Wednesday morning bolstered expectations for at least one more hike after it showed employers advertised more job openings last month than expected. It’s the latest signal of a job market that’s remained remarkably resilient in the face of higher interest rates.
While that’s good news for workers and for the economy, it also gives the Fed more leeway to keep rates high. A strong job market could keep upward pressure on workers’ wages, which Wall Street fears could keep inflation high.
“The increase in job openings is the worst news the Fed could have because that just puts more pressure on wages,” Roth said.
Other, smaller portions of the economy have shown much more pain. A report on Wednesday morning suggested manufacturing in the Chicago region is contracting by much more than economists feared. It’s the latest region to report much weaker manufacturing than expected.
The US banking system has also come under pressure because of the Fed. The surge in rates over the last year means customers are pulling their deposits in hopes of making more in interest at money-market funds. Higher rates have also knocked down the values for bonds and other investments banks made when rates were low.
On Friday looms the US government’s comprehensive report on hiring across the economy. Economists expect it to show a slowdown in hiring and a tick higher in the unemployment rate.
Bubbling behind all these worries is a still simmering drama in Washington about a potential default on the US government’s debt.
President Joe Biden and House Speaker Kevin McCarthy are trying to wrangle enough votes to pass a deal they struck over the weekend to allow the US government to borrow more money. They need an approval in place before the US government runs out of cash to pay its bills, which could happen as soon as Monday. If they fail, a default could cause tremendous pain for the economy and financial markets.
On Wall Street, Advance Auto Parts plunged 35 per cent after it reported much weaker profit for the latest quarter than analysts expected. The retailer also said it expects pressures to continue through 2023, and it cut its full-year financial forecast and reduced its dividend.
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Hewlett Packard Enterprise tumbled after it reported weaker revenue for the latest quarter than expected. HP dropped 6.1 per cent after its revenue likewise fell short of forecasts.
Profits for companies across the S&P 500 were largely better than analysts feared for the first three months of the year. But they were still down from where they were a year earlier.
In stock markets abroad, the Hang Seng tumbled 1.9 per cent in Hong Kong, while stocks fell 0.6 per cent in Shanghai.
Japan’s Nikkei 225 dropped 1.4 per cent, while indexes fell 1.5 per cent in France and 1.5 per cent in Germany.
In the bond market, the yield on the 10-year Treasury fell to 3.64 per cent from 3.70 per cent late Tuesday. It helps set rates for mortgages and other important loans that influence the housing and other markets.
The two-year yield, which moves more on expectations for Fed action, fell to 4.39 per cent from 4.46 per cent.
AP
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