Bonds Rally as Traders Reload Fed Bets After Data: Markets Wrap

This content was published on June 4, 2024 - 22:08

5 minutes

(Bloomberg) — The bond market climbed as signs of labor-market cooling reinforced speculation the Federal Reserve will be able to cut rates this year.

Just a week away from the Fed meeting, the so-called JOLTS report showed US job openings hit the lowest since 2021. The figures lifted Treasuries, with 10-year yields extending a four-day plunge to almost 30 basis points. Fed swaps are now pricing in a first cut in November — and higher odds of a September reduction. Despite the dovish bets, stocks struggled to gain much traction as the bad-news-is-good-news narrative failed to entice many traders.

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To Bill Adams at Comerica Bank, the bright side of the story is that the risk of wage-price pressures fueling inflation is falling, which has the Fed breathing easier than a few years ago. That’s probably why Fed Chair Jerome Powell took it in stride when inflation accelerated earlier this year, saying hikes were unlikely, he noted.

“The evidence is accumulating that the Fed should begin easing,” said Ronald Temple, chief market strategist at Lazard.

Treasury 10-year yields fell six basis points to 4.33%. The S&P 500 edged up to around 5,290.

Oil fell to the lowest in about four months after OPEC+’s plan to loosen its production curbs this year deepened the market’s bearish sentiment. Copper slid below $10,000. Bitcoin topped $70,000.

The recent economic reports have reinforced the notion that investors are increasingly looking beyond the “Goldilocks” narrative toward something a bit more consistent with the flagging trajectory of consumption,” said Ian Lyngen and Vail Hartman at BMO Capital Markets.

“There is nothing to imply that the real economy is on the precipice of a recession, however, rather that a no-landing for the labor market appears less likely than it did during the first quarter,” they noted. “Goldilocks is edging toward the door, but has yet to leave the building.”

To Fawad Razaqzada at City Index and Forex.com, while JOLTS caused bond yields to fall, this has been offset by concerns over economic and earnings growth.

“Thus, stocks have not responded in the usual way of cheering on weaker-than-expected data,” he noted. “The questions, are we finally headed for a long overdue correction now? The S&P 500 outlook is not bearish yet from a technical viewpoint, but the potential is there for that to change in the coming days.”

Bank of America Corp. clients fled US equities for a fifth-straight week, withdrawing $5.7 billion from the asset class in the five-day period ended last Friday.

The outflow was the biggest since last July and the fourth-largest in bank’s data history, quantitative strategists led by Jill Carey Hall said. Institutional and hedge fund clients were net sellers as retail investors bought.

Corporate Highlights:

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Nvidia Corp. is still working on the certification process for Samsung Electronics Co.’s high-bandwidth memory chips, a final required step before the Korean company can begin supplying a component essential to training AI platforms.
Paramount Global, the parent of CBS and MTV, is considering joint-venture options for its streaming service and has identified $500 million in annual savings to boost profitability even as it prepares for a probable sale.
CoreWeave Inc., a closely held cloud computing provider, has offered to acquire Bitcoin miner Core Scientific Inc. for about $1 billion, a person with knowledge of the matter said.
Airbus SE is negotiating a major sale of A330neo aircraft to China, with talks gaining momentum since President Xi Jinping visited his French counterpart Emmanuel Macron last month.
Stellantis NV is willing to drop some of its suppliers and make car parts on its own to lower costs in the expensive shift to electrification.

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