ASX to follow Wall Street tumble after hot jobs data raises threat of high rates

“Whether it’s that big of a number” as what the ADP report suggested “or even half of that, it would still be showing that the labor market is very strong and the Fed has not done enough to get inflation down,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.

“Even with some of this nuanced economic data, the bottom line is the labor market is always a lagging indicator” and later to crack under the weight of higher interest rates than other parts of the economy, she said. “We still expect the labor market to get weaker.”

She expects a recession to hit within the next 12 months.

Yields jumped in the bond market as traders ramped up bets for the Fed to keep rates higher for longer than previously expected. Hopes for a potential cut to interest rates by early next year diminished.

‘The bottom line is the labor market is always a lagging indicator… We still expect the labor market to get weaker.’

Megan Horneman, chief investment officer at Verdence Capital Advisors.

The yield on the 10-year Treasury rose to 4.03 per cent from 3.94 per cent late on Wednesday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, climbed to 4.99 per cent from 4.95 per cent. It’s back to where it was in early March, before the failures of several US banks rattled confidence across financial markets.

Those collapses were caused in part by all the rate rises the Federal Reserve has piled on since early last year. It’s raised its federal funds rate by a 5 percentage points from virtually zero to try to smother the worst inflation in decades. High interest rates work by slowing the entire economy, and unanticipated cracks often appear under the pressure.

On Wall Street, Exxon Mobil was one of the heaviest weights on the market after it tumbled 3.7 per cent. It warned of a hit to its profit during the spring because of changes in gas prices and industry margins, among other items.

JetBlue Airways sank 7.2 per cent after it said it will end a partnership with American Airlines in the north-eastern United States after losing a court fight over the deal. JetBlue will focus instead on salvaging its proposed purchase of Spirit Airlines. American Airlines fell 2.4 per cent.

Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, wavered between small gains and losses after unveiling its new app Threads, a rival to Twitter, which has had a bumpy ride under new owner Elon Musk. Meta ended the day down 0.8 per cent.

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Stock markets abroad also fell sharply.

China’s market has been under particular pressure as the recovery for the world’s second-largest economy sputters following the removal of anti-COVID restrictions. Tensions between China and the United States have also weighed on the market, and US Treasury Secretary Janet Yellen visited China Thursday attempting to improve relations.

Hong Kong’s Hang Seng index dropped 3 per cent, partly due to sharp drops for Chinese banks shares after Goldman Sachs downgraded them, citing concerns about the slowing economy and lenders’ exposures to debt. Stocks in Shanghai fell 0.5 per cent.

Japan’s Nikkei 225 dropped 1.7 per cent after being one of the world’s stars through the first half of the year.

In Europe, France’s CAC 40 tumbled 3.1 per cent and Germany’s DAX lost 2.6 per cent.

AP

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