Wall Street stocks edged lower on Monday, adding to small losses in the previous session, as a U.S. jobs report fueled expectations of a more aggressive rate hike campaign of interest by the Federal Reserve.
The blue-chip S&P 500 and the tech-heavy Nasdaq Composite both fell 0.1%, reversing gains in early trade. Europe’s Stoxx 600 closed 0.7% higher, while Hong Kong’s Hang Seng index fell 0.8%.
US government debt rose in price, with the yield on the 10-year Treasury note falling 0.09 percentage points to 2.74%. The policy-sensitive two-year yield fell 0.04 percentage points to 3.21%.
The moves came after a jobs report from the world’s largest economy on Friday showed the jobless rate returned to a half-century low as employers added 528,000 jobs in July, more than double the 250,000 predicted by economists.
These figures preceded the closely watched US consumer price index report on Wednesday. Economists polled by Reuters expect headline inflation to have risen 0.2% month-on-month from June to July, down from 1.3%. Core inflation, which strips out volatile categories such as food and petrol, is expected to have risen 0.5%.
The S&P 500 closed 0.2% lower on Friday as traders anticipated that stronger-than-expected jobs data would encourage the U.S. central bank to raise interest rates further. But the index still gained 0.4 percent for the week. With the Nasdaq also up 2.2 percent for the week, it was the first time since early April that both indexes posted three consecutive weekly gains.
On the commodities front, Brent crude rebounded from earlier losses to gain 1.8% to settle at $96.65 a barrel. That rise came after the international oil benchmark last week posted its biggest weekly drop since April 2020.
“We are in an environment where central banks have a difficult choice: high inflation or the risk of recession. Faced with that choice, central bankers are likely to choose recession,” said Bill Papadakis, macro strategist at Lombard Odier .
In recent weeks, central banks have shown their willingness to tackle inflation robustly, with the Bank of England, the European Central Bank and the Fed all introducing sizeable rate hikes despite signs of an economic slowdown.
Futures markets indicate that investors are pricing in the possibility of a third straight hike of 0.75 percentage points when Fed policymakers meet in September, although Deutsche Bank analysts note that there would be two releases more on the CPI before the next central bank meeting.
“Friday’s monster payrolls report . . . finally got the message across that the narrative of a dovish Fed pivot . . . was exceptionally premature,” they wrote in a note.
After the greenback pared gains on Friday after the jobs report, the greenback fell 0.3 percent against a basket of six other major currencies.