This week kept the spotlight on the labor market, and results of relevant reports induced a sell-off of treasury bonds. The U.S. economy continues to show strength, while the oil market’s expecting reduced demand.
Yesterday's stock market decline was abrupt following an unexpectedly strong ADP private employment record.
The labor market has been the focus of many economic discussions this week; both the ADP results from yesterday and the jobless claims from the prior week surprised the market with their unexpectedly high numbers.
Later, the ISM Non-Manufacturing Index's data was also released with a higher-than-anticipated result.
Despite the escalating increases in interest rates, all evidence points to the US economy not being weak.
How will the FED react?
The Federal Reserve will likely be pushed to keep raising interest rates in an effort to calm the economy and bring inflation down as it continues to be particularly high.
As a result, the market reacted by selling off a significant amount of treasury bonds, which caused their yields to soar. The announcement of the always-relevant non-farm payroll statistic will take place today.
The 2-year bond reached yield levels unseen in the previous 15 years. Following the release of these statistics, confirmation of the strength of the labor market would only serve to reinforce investors' conviction that interest rates are still some distance from their all-time high.
Is the market sentiment still on the upside?
Investors worry that the interest rate increases would be excessive and lead to a harsh landing in the US economy even though the economic data is still showing strength.
This is the main cause of the US indices sustaining steep declines today, which started yesterday when the Federal Reserve's most recent meeting's minutes were made public.
The oil market also suffered a setback. After a week of constant increases, crude oil declined by about 2% out of fear that a severe slowdown in the economy brought on by excessive interest rate increases would lower demand for crude oil.
Light Sweet Crude Oil Futures chart. Sources: Bloomberg, Reuters
- The labor markets kept the spotlight this week
- Jobless claims report surprised the market
- U.S.’s economy still showing strength
- U.S. Indices declining after FED Minutes
- Investors expecting the FED to further hike the rates
- Oil market seeing a setback