(Bloomberg) — A selloff in banks led the equity market lower after a four-day rally. Treasuries rose as softer data on US job openings bolstered bets the Federal Reserve is about to wrap up its tightening campaign.
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The KBW Bank Index of financial heavyweights like Wells Fargo & Co. and Citigroup Inc. sank almost 3%. Zions Bancorporation and First Republic Bank drove regional lenders down, slumping at least 5.9%. Earlier in the day, JPMorgan Chase & Co.’s chief Jamie Dimon warned that the US banking crisis that sent markets careening last month will be felt for years.
“Investors should continue to be vigilant for signs of bank stress, and we expect market participants to react disproportionately to negative economic news,” said Gennadiy Goldberg, senior US rates strategist at TD Securities.
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Two-year yields slumped as much as 14 basis points to around 3.8% after a report showed vacancies at US employers dropped in February to the lowest since May 2021 and came below all estimates in a Bloomberg survey of economists. Swap contracts referencing Fed meeting dates downgraded the odds of a quarter-point rate hike in May to just under 50%, from about 60%. The dollar fell.
“Bottom line, it was just a matter of when, not if, we were going to see evidence of lessened job demand in this data point,” said Peter Boockvar, author of the Boock Report. “And at some point, the pace of firings will pick up as companies try to defend profit margins and respond to the slowing economic backdrop. I just don’t see the Fed hiking rates in May or any time thereafter in this cycle.”
The data precede Friday’s jobs report, which is currently forecast to show employers added nearly a quarter of a million workers in March. Economists are expecting the unemployment rate to hold at a historically low 3.6% and for average hourly earnings to rise firmly.
Before Tuesday’s economic figures, Fed Governor Lisa Cook said that given the strength of the labor market, “we are still going to see inflation from that, but we’ve seen wage gains moderating quite a bit,” she said. That suggests the “disinflationary process” is underway, but “we’re not there yet.”
‘Calm Before the Storm’
Bank of America Corp. clients sold US equities last week for the first time in five weeks, withdrawing the largest amount of funds from the asset class since October, according to strategists led by Jill Carey Hall.
Headwinds from the recent bank turbulence, an oil shock and slowing growth are poised to send stocks back toward their 2022 lows, according to JPMorgan strategist Marko Kolanovic.
“The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally,” Kolanovic wrote. “We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months.”
A recent drop in Wall Street’s so-called fear gauge or VIX below 20 suggests investors believe the banking crisis is contained in the near term. However, Kolanovic characterizes the present market backdrop as “the calm before the storm.”
Elsewhere, Bitcoin trended toward the high end of its recent range of around $28,000, while Dogecoin continued to benefit from Elon Musk’s flirtation with the meme token.
Key events this week:
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Eurozone S&P Global Eurozone Services PMI, Wednesday
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US trade, Wednesday
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UBS annual general meeting, Wednesday
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US initial jobless claims, Thursday
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St. Louis Fed President James Bullard speaks, Thursday
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US unemployment, nonfarm payrolls, Friday
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Good Friday. US stock markets closed, bond markets close for part of the day
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.7% as of 2:24 p.m. New York time
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The Nasdaq 100 fell 0.4%
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The Dow Jones Industrial Average fell 0.7%
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The MSCI World index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.4% to $1.0947
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The British pound rose 0.7% to $1.2497
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The Japanese yen rose 0.6% to 131.70 per dollar
Cryptocurrencies
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Bitcoin rose 2.1% to $28,161.5
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Ether rose 5% to $1,868.64
Bonds
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The yield on 10-year Treasuries declined six basis points to 3.35%
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Germany’s 10-year yield was little changed at 2.25%
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Britain’s 10-year yield was little changed at 3.43%
Commodities
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West Texas Intermediate crude rose 0.4% to $80.71 a barrel
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Gold futures rose 1.9% to $2,038.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Srinivasan Sivabalan, Vildana Hajric, Angel Adegbesan, Carly Wanna, Peyton Forte and Isabelle Lee.
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