By Chuck Mikolajczak
NEW YORK (Reuters) – A gauge of global equities rose on Wednesday for the first time this week while U.S. Treasury yields fell after U.S. employment data buttressed expectations the Federal Reserve has room to maneuver towards a rate cut next year.
U.S. private payrolls rose by 103,000 jobs last month, the ADP National Employment Report showed on Wednesday, below the 130,000 estimate of economists polled by Reuters. Data for October was revised lower to show 106,000 jobs added instead of 113,000 as previously reported.
“This is basically what markets are looking for (as) weaker labor growth would reduce the threat of inflation,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
Other data showed U.S. worker productivity grew faster than initially thought in the third quarter, putting more downward pressure on labor costs, which could contribute to lower inflation should the trend remain intact.
On Wall Street, U.S. stocks rose after the ADP data, led by gains in industrial and real estate stocks.
The Dow Jones Industrial Average rose 93.24 points, or 0.26% , to 36,217.8, the S&P 500 gained 10.38 points, or 0.23 %, to 4,577.56 and the Nasdaq Composite gained 28.02 points, or 0.20 %, to 14,257.93.
Softening economic data and recent comments from Federal Reserve officials, including Chair Jerome Powell, have heightened expectations that the U.S. central bank has ended its interest rate hiking cycle and will begin to cut rates as soon as March.
Expectations for a U.S. rate cut of at least 25 basis points (bps) in March are about 60%, according to CME’s FedWatch Tool, up from about 50% a week ago. The Fed’s next policy meeting is on Dec. 12-13.
In addition to the Fed, expectations have risen for rate cuts in other global economies, with markets currently pricing in a 71% chance of cut by the European Central Bank (ECB) in March.
However, the Bank of Canada on Wednesday held its key overnight rate at 5% and left the door open to another hike, saying it was still concerned about inflation while acknowledging an economic slowdown and a general easing of prices.
The ADP report was the latest in a run of data this week on the U.S. labor market, culminating on Friday with the government’s payrolls report. On Tuesday, a report on job openings fell to its lowest level since early 2021, while a separate measure of activity showed the U.S. services sector picked up, athough new orders were flat.
The yield on the benchmark U.S. 10-year Treasury note on Wednesday fell 5 basis points to 4.125% after hitting a fresh 3-month low of 4.115%, suggesting the bond market is anticipating a weak jobs report on Friday.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 2 basis points to 4.593%.
European shares were higher as investors largely view the peak in interest rates has been reached. The pan-European STOXX 600 index rose 0.77% and MSCI’s gauge of stocks across the globe climbed 0.67% after two straight days of declines, its first consecutive daily declines in five weeks.
The dollar index fell 0.05% at 103.91 after earlier hitting a two-week high while the euro was down 0.04% to $1.0791.
Brent crude futures fell 2.32% to $75.411 a barrel, while U.S. crude was at $70.39, down 2.67% on the day after settling at their lowest level since July on Tuesday, as the market weighed the effectiveness of OPEC+ cuts against concerns of the potential impact of a worsening macroeconomic outlook on global demand.
(Reporting by Chuck Mikolajczak; additional reporting by Reporting by Amruta Khandekar and Shristi Achar A in Bengaluru, Editing by Nick Zieminski)
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