(Bloomberg) -- Treasuries resumed their rally on Tuesday as further labor-market cooling reinforced speculation the Federal Reserve will be able to cut interest rates next year to prevent a recession.
Yields dropped across the US curve after data showed job openings fell to the lowest level since March 2021. Concerns about investors being too fast in anticipating policy easing have resurfaced. this week — underscoring the risks traders face as they boosted on wagers that slowing growth and inflation would force the Fed to execute a policy pivot. It's a bet that stands to pay off handsomely if rate cuts materialize — or backfire if policymakers opt to keep borrowing costs higher for longer.
"Overall, the jobs update is in the driver's seat," said Ian Lyngen at BMO Capital Markets. "Treasuries extended the bullish price action. From here, there isn't much on the macro horizon until tomorrow's ADP report."
US jobs data later in the week is seen as a key piece of the puzzle to understanding the economy and the risk that wage growth fans inflation, leading to higher borrowing costs for longer. Before that, traders will be wading through Tuesday's readings on jobs openings and services.
BlackRock Inc. says market optimism over the scope of interest-rate cuts next year may be going too far and recommends stepping back from longer-maturity bonds.
"We see the risk of these hopes being disappointed," strategists including Wei Li and Alex Brazier wrote. "Higher rates and greater volatility define the new regime."
The Fed is losing control of its messaging on interest rates, but financial markets are wrong to expect imminent cuts, Allianz Chief Economic Adviser Mohamed El-Erian said.
"I do believe the Fed is done raising rates, but I don't think that validates what is in the markets about rate cuts next year," El-Erian, who's also a Bloomberg Opinion columnist, said. "They still have a significant communication problem and they still have a credibility problem."
The Fed's decision to keep rates high means it has a "a loaded gun that they can use as needed" if economic conditions worsen, according to James Zelter.
Elsewhere, Isabel Schnabel, one of the European Central Bank's most-hawkish officials told Reuters that inflation is showing a "remarkable" slowdown, a U-turn prompting markets to ramp up bets on an interest-rate cut as early as March.
And Moody's Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns about the level of debt in the world's second-largest economy.
Corporate Highlights:
- Johnson & Johnson expects operational sales growth between 5% to 6% in 2024 as its top-selling psoriasis drug starts to face generic competition outside the US.
- CVS Health Corp. plans to change how its more than 9,000 pharmacies get paid with a new reimbursement model designed to simplify drug pricing.
- Robinhood Markets Inc. said November crypto notional trading volumes were about 75% above October levels.
- Rockstar Games, part of Take-Two Interactive Software Inc. released the first trailer for the newest version of Grand Theft Auto on Monday, giving fans a glimpse of what's likely to rank as one of the industry's top-selling titles. The game will be released in 2025, the company said in statement Monday.
- Former cargo hauler Yellow Corp. agreed to sell its trucking terminals to more than 20 companies for $1.9 billion, a move that likely ends a long-shot effort to revive the bankrupt company.
- Bill Holdings Inc., a provider of expense-management products for businesses, will cut its workforce by around 15% and close its Sydney office.
- London Stock Exchange Group Plc suffered a third outage in a few months as trading in about 2,000 smaller shares was halted, adding to the bourse operator's recent woes.
- Johnson & Johnson expects operational sales growth between 5% to 6% in 2024 as its top-selling psoriasis drug starts to face generic competition outside the US.
- CVS Health Corp. plans to change how its more than 9,000 pharmacies get paid with a new reimbursement model designed to simplify drug pricing.
- Robinhood Markets Inc. said November crypto notional trading volumes were about 75% above October levels.
- Rockstar Games, part of Take-Two Interactive Software Inc. released the first trailer for the newest version of Grand Theft Auto on Monday, giving fans a glimpse of what's likely to rank as one of the industry's top-selling titles. The game will be released in 2025, the company said in statement Monday.
- Former cargo hauler Yellow Corp. agreed to sell its trucking terminals to more than 20 companies for $1.9 billion, a move that likely ends a long-shot effort to revive the bankrupt company.
- Bill Holdings Inc., a provider of expense-management products for businesses, will cut its workforce by around 15% and close its Sydney office.
London Stock Exchange Group Plc suffered a third outage in a few months as trading in about 2,000 smaller shares was halted, adding to the bourse operator's recent woes.
Key events this week:
- Eurozone retail sales, Wednesday
- Germany factory orders, Wednesday
- US ADP private payrolls, trade balance, Wednesday
- CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday
- Bank of Canada monetary policy meeting, Wednesday
- Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- Germany industrial production, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- Germany CPI, Friday
- Japan household spending, GDP, Friday
- Reserve Bank of Australia's head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
- US jobs report, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 10:21 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0821
- The British pound was little changed at $1.2623
The Japanese yen rose 0.2% to 146.86 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to $42,232.81
Ether fell 0.9% to $2,215.4
Bonds
- The yield on 10-year Treasuries declined seven basis points to 4.19%
- Germany's 10-year yield declined nine basis points to 2.26%
Britain's 10-year yield declined 14 basis points to 4.06%
Commodities
- West Texas Intermediate crude rose 1% to $73.76 a barrel
- Spot gold fell 0.5% to $2,019.17 an ounce
- This story was produced with the assistance of Bloomberg Automation.
--With assistance from Cecile Gutscher, Vildana Hajric and Isabelle Lee.
More stories like this are available on bloomberg.com
