Bond Yields Remain In Focus As Traders React To Upbeat Jobs Data

The major U.S. index futures are currently pointing to a higher open on Friday, although the futures have fluctuated following the release of the closely watched monthly jobs report.

The lack of direction being shown by the futures comes after the Labor Department released a report showing much stronger than expected job growth in the month of February.

The Labor Department said non-farm payroll employment jumped by 379,000 jobs in February after climbing by an upwardly revised 166,000 jobs in January.

Economists had expected employment to increase by 182,000 jobs compared to the uptick of 49,000 jobs originally reported for the previous month.

The stronger than expected job growth was primarily due to a rebound in employment in the leisure and hospitality industry, which added 355,000 jobs.

The report also said the unemployment rate unexpectedly edged down to 6.2 percent in February from 6.3 percent in January. Economists had expected the unemployment rate to remain unchanged.

The strong jobs data is an upbeat sign for the economy, but traders are also paying close attention to the reaction in the bond markets.

Yields initially jumped in reaction to the jobs report, with the yield on the benchmark ten-year note reaching a one-year high above 1.6 percent.

The ten-year yield has given back some ground since then but remains at an elevated level that may add to recent concerns about higher interest rates.

Stocks saw substantial volatility during trading on Thursday, with a sell-off seen in early afternoon trading resulting in a sharply lower close for the markets. With the steep drop on the day, the major averages extended the substantial move to the downside seen Tuesday and Wednesday.

The Dow and the S&P 500 slumped to their lowest closing levels in a month, while the tech-heavy Nasdaq plunged to a two-month closing low.

The major averages all posted steep losses on the day, although the Nasdaq underperformed its counterparts. The Nasdaq plummeted 274.28 points or 2.1 percent to 12,723.47, while the Dow tumbled 345.95 points or 1.1 percent to 30,924.14 and the S&P 500 dove 51.25 points or 1.3 percent to 3,768.47.

The sell-off by on Wall Street came as treasury yields spiked in reaction to highly anticipated comments by Federal Reserve Chair Jerome Powell.

The yield on the benchmark ten-year note soared as Powell spoke, ending the session at its highest closing level in a year.

Speaking during The Wall Street Journal Jobs Summit, Powell acknowledged the reopening of the economy could “create some upward pressure on prices.”

However, Powell suggested the increase in the annual rate of inflation would largely reflect comparisons to the low prices seen a year ago.

The Fed chief said he expects the increase in inflation to be “transitory” and stressed there is “a lot of ground to cover” before price growth reaches a sustainable level above the Fed’s 2 percent target.

Powell said the recent spike in bond yields has “caught my attention,” and he would be “concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.”

Nonetheless, the Fed chief did not signal a “twist” in the central bank’s asset purchases as some investors had hoped, leading to the surge in yields.

Traders have kept a close eye on activity in the bond markets in recent sessions, as the jumps in yields has raised concerns about inflation and the outlook for interest rates.

On the economic front, the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended February 27th.

The report said initial jobless claims inched up to 745,000, an increase of 9,000 from the previous week’s revised level of 736,000.

Economists had expected jobless claims to rise to 750,000 from the 730,000 originally reported for the previous week.

A separate report released by the Commerce Department showed a bigger than expected increase in new orders for U.S. manufactured goods in the month of January.

Reflecting weakness in the broader tech sector, computer hardware stocks showed a substantial move to the downside on the day. The NYSE Arca Computer Hardware Index plunged by 4.7 percent to its lowest closing level in a month.

Semiconductor, networking and biotechnology stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

Significant weakness was also visible among airline stocks, resulting in a 4.4 percent nosedive by the NYSE Arca Airline Index.

Steel, transportation, and brokerage stocks also showed notable moves to the downside on the day, moving lower along with most of the other major sectors.

Meanwhile, energy stocks were among the few groups to buck the downtrend, as the price of crude oil spiked after OPEC and its allies agreed to extend production cuts.

Commodity, Currency Markets

Crude oil futures are jumping $1.42 to $65.25 a barrel after spiking $2.55 to $63.83 a barrel on Thursday. Meanwhile, after slumping $15.10 to $1,700.70 an ounce in the previous session, gold futures are sliding $13.50 to $1,687.20 an ounce.

On the currency front, the U.S. dollar is trading at 108.34 yen versus the 107.98 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1925 compared to yesterday’s $1.1969.

Asia

Asian stocks fell on Friday as treasury yields spiked in reaction to the latest comments from Federal Reserve Chair Jerome Powell indicating that he expects some inflationary pressures in the time ahead.

China’s Shanghai Composite Index fluctuated before finishing marginally lower at 3,501.99, as the country set a conservative economic growth target of above 6 percent for 2021, well below what economists had forecast, and outlined fiscal support for the economic recovery.

Hong Kong’s Hang Seng Index dropped 138.50 points, or 0.5 percent, to 29,098.29 after reports that Beijing plans a major overhaul of the city’s electoral system to ensure “patriots” are in charge.

Japanese shares ended lower for the second straight day, with index heavyweights and technology shares bearing the brunt of the selling on concerns over rising U.S. bond yields.

The Nikkei 225 Index dipped 65.79 points, or 0.2 percent, to 28,864.32 as the government extended the Covid-19 related state of emergency by two weeks for the Tokyo region to prevent a fresh wave of infections. The broader Topix closed 0.6 percent higher at 1,896.18, recovering from an early slide.

Fast Retailing, the operator of Uniqlo clothing stores, gave up 3.4 percent, while Tokyo Electron and Advantest fell 2.5 percent and 1.3 percent, respectively in the tech sector. Toshiba surged 6 percent after Mizuho Financial Group built a 5.1 percent stake in the energy and infrastructure services firm.

Australian markets fell for a second straight session after Powell disappointed some traders by offering few signs of expanding monetary stimulus.

The benchmark S&P/ASX 200 Index slid 49.90 points, or 0.7 percent, to 6,710.80, while the broader All Ordinaries Index ended down 57.60 points, or 0.8 percent, at 6,943.

Tech shares followed their U.S. peers lower, with Afterpay losing 2.5 percent and WiseTech Global giving up 1.9 percent.

Mining heavyweights BHP and Rio Tinto fell 2-3 percent, while lithium-boron supplier Ioneer slumped 13.6 percent after a discounted share placement.

Woodside Petroleum, Oil Search and Santos jumped 3-5 percent after crude prices hit a more than one-year high overnight. Gold miners finished broadly lower after gold prices hit a nine-month low.

In economic news, a survey showed the services sector in Australia expanded in February, with a seasonally adjusted Performance of Service Index score of 58.8, the highest reading since June of 2018.

Seoul stocks hit a one-month low before ending off their worst levels. The benchmark Kospi fell as low as 2,982.45 before regaining some ground to end the session down 17.23 points, or 0.6 percent, at 3,026.26. Samsung SDI gave up 1 percent, SK Hynix dropped 1.4 percent and Naver tumbled 3.6 percent.

Europe

European stocks are mostly lower on Friday in the wake of rising U.S. bond yields as comments from Federal Reserve Chair Jerome Powell failed to ease concerns around both a spike in inflation and a sustained rise in interest rates.

While the German DAX Index is down by 0.6 percent and the French CAC 40 Index is down by 0.5 percent, the U.K.’s FTSE 100 Index has bucked the downtrend and inched up by 0.2 percent.

Stock Exchange Group LSE has shown a notable move to the downside despite announcing a dividend increase and issuing an upbeat outlook.

Meanwhile, Norsk Hydro, one of the world’s largest aluminum producers, has advanced after it agreed to sell its rolling business to private equity firm KPS Capital Partners.

Equipment rental company Aggreko has also risen after it backed a 2.32 billion pound ($3.22 billion) buyout offer from private equity firms TDR Capital LLP and I Squared Capital.

Investors have largely ignored data from Destatis showing that German factory orders grew more than expected in January, driven by foreign demand.

Factory orders expanded 1.4 percent month-on-month in January, reversing a revised 2.2 percent drop in the previous month. Orders were forecast to climb 0.7 percent.

U.K. house prices dropped for the second straight month in February, data released by the Lloyds Bank subsidiary Halifax and IHS Markit showed. House prices fell 0.1 percent sequentially, slower than the 0.4 percent decline seen in January.

U.S. Economic Reports

Reflecting a significant rebound in employment in the leisure and hospitality industry, the Labor Department released a report on Friday showing much stronger than expected U.S. job growth in the month of February.

The Labor Department said non-farm payroll employment jumped by 379,000 jobs in February after climbing by an upwardly revised 166,000 jobs in January.

Economists had expected employment to increase by 182,000 jobs compared to the uptick of 49,000 jobs originally reported for the previous month.

With the stronger than expected job growth, the unemployment rate unexpectedly edged down to 6.2 percent in February from 6.3 percent in January. Economists had expected the unemployment rate to remain unchanged.

A separate report released by the Commerce Department on Friday showed the U.S. trade deficit widened in the month of January.

The Commerce Department said the trade deficit widened to $68.2 billion in January from a revised $67.0 billion in December.

Economists had expected the trade deficit to widen to $67.5 billion from the $66.6 billion originally reported for the previous month.

The wider trade deficit came as the value of imports climbed by 1.2 percent to $260.2 billion, while the value of exports rose by 1.0 percent to $191.9 billion.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of January. Consumer credit is expected to increase by $12.0 billion.

Atlanta Federal Reserve President Raphael Bostic is also due to speak on “Macroeconomic Policy” before a virtual Stanford Institute for Economic Policy Research 2021 Economic Summit at 3 pm ET.

Stocks In Focus

Shares of Gap (GPS) are likely to see initial strength after the apparel retailer reported better than expected fourth quarter earnings and forecast a return to sales growth this year.

Firearm manufacturing Smith & Wesson (SWBI) may also move to the upside after reporting fiscal third quarter earnings that exceeded analyst estimates.

On the other hand, shares of Norwegian Cruise Line Holdings (NCLH) are moving sharply lower in pre-market trading after the cruise line operator announced a public stock offering of 47.6 million shares.

Discount retailer Big Lots (BIG) may also come under pressure after reporting better than expected fourth quarter earnings but saying it expects its financial performance in 2021 will be significantly affected by the ongoing Covid-19 pandemic.