A decline in global stocks spread to Wall Street on Thursday with disappointing data on America’s labour market adding to uncertainty over the Federal Reserve’s willingness to deploy new policy measures.
The S&P 500 opened 0.5 per cent lower, following a fall in the previous session as the main US stocks barometer edges further back from an all-time high it set earlier this week.
The price of US government debt also gained, sending yields lower, after data released on Thursday underscored the persistent weakness in the labour market even as other sectors such as house construction have begun to recover from the shock caused by coronavirus.
More than 1.1m Americans filed for first-time jobless benefits last week, higher than economists had forecast. The rise in claims from 971,000 the previous week reversed a two-week trend of improvement.
“The claims data this week are disappointing, following two weeks where the data had shown such impressive downside momentum,” said Thomas Simons, economist at Jefferies. ”
Meanwhile, a survey of manufacturers by the Philadelphia Fed suggested the recovery in the regional factory sector eased this month, echoing the findings of a similar report by the New York Fed published on Monday.
Equities in Europe and Asia sustained selling pressure earlier on Thursday after a summary of the US central bank’s July meeting, released after the region’s markets were closed the previous day, indicated “many” members of its policy-setting committee were unwilling to launch measures that would place a cap on yields of US government bonds.
Europe’s Stoxx 600 index was down 1.1 per cent in afternoon dealings as indices in London, Paris and Frankfurt fell. MSCI’s broad gauge of Asia-Pacific stocks shed 1.5 per cent.
Market sentiment was dented by indications in the Fed minutes that showed many central bankers believed so-called yield curve control was not “warranted in the current environment”. The Fed’s reluctance to signal it would not raise interest rates or ease its bond buying until certain economic thresholds were reached also caused unease.
“The FOMC minutes surprised in indicating that yield curve control was not in the near-term set of policies that the Fed would adopt,” said Steve Englander, head of North American macro strategy at Standard Chartered.
“Fixed-income investors probably saw this both as hawkish relative to expectations and as raising expected rates volatility.”
Oscar Munoz, rates strategist at TD Securities, added that “the market is priced for easing on forward guidance and QE, so the lack of a ‘clear green light’ was a disappointment”.
Mr Englander added that investors would look ahead to the upcoming Jackson Hole Economic Symposium, typically a platform for significant policy announcements, and the Fed’s September meeting for further clues on the central bank’s plans.
US Treasuries gained in price on Thursday amid the selling in riskier portions of the market, pushing the 10-year yield down 0.03 percentage points to 0.653 per cent. The rise in price accelerated after the release of the jobs data. UK gilts and German Bunds also advanced.
The bout of concern over monetary policy comes as several potential worries bubble in the background. US stocks are now priced at more than 22 times expected earnings over the next year, according to FactSet — levels not seen since the dotcom bubble burst two decades ago.
At the same time, tensions between the US and China ratchet higher, American elections are just months away and many countries, particularly in Europe, have reported a resurgence in Covid-19 cases.