While data also showed weekly jobless claims ticking higher and job openings easing somewhat in May, the rate of job ‘quits’ was also up – underlining the tightness of the labor market that’s making the Federal Reserve so uncomfortable about getting inflation back to 2% target.
On top of that, there were signs that activity at dominant U.S. service sector firms picked up steam again last month too.
Friday’s release of the Labor Department’s monthly national payrolls report will seal the picture.
The fear at the Fed is that the wider economy is rebounding again with inflation rates still twice where it wants them. “I remain very concerned about whether inflation will return to target in a sustainable and timely way,” Dallas Fed chief Lorie Logan said on Thursday.
With futures markets reflecting more than an 80% chance of another quarter-point Fed hike later this month and almost a 50-50 chance of a further one by November, two-year government bond yields everywhere soared.
U.S. Treasury yields hit 16-year highs above 5%, German equivalents hit their highest in 15 years and British gilt yields scaled 2008 peaks. The selloff was across the curve; 30-year Treasury yields topped 4% again to stalk the year’s highs while 30-year gilts were on course for their biggest one-day hit since the UK budget farce of last autumn.
The S&P500 had its worst day since May and world stocks their biggest daily loss since April. The VIX gauge of implied Wall St volatility – which had been peculiarly subdued right through last month – jumped to its highest since June 1.
Markets have calmed slightly as they await Friday’s payrolls for confirmation.
Hong Kong‘s benchmark Hang Seng Index lost almost 1% and Japan’s Nikkei more than that as they aped Thursday selling overseas – but European bourses and U.S. futures held steady on Friday and the VIX dialed back a bit.
Crucially, 2-year Treasury yields edged back below 5%.
Elsewhere, Treasury Secretary Janet Yellen’s trip to China so far shows few signs of new breakthroughs in tense relations between the two economic superpowers.
And in social media wars, Elon Musk’s Twitter looks set to sue Meta over its launch this week of a rival platform called Threads.
