(Bloomberg) — U.S. futures edged higher and Asian stocks were mixed Friday as investor focus turned to upcoming data from the American labor market. Treasuries steadied after declining all week.
Shares climbed in Hong Kong and South Korea but slipped in Japan. S&P 500 futures saw modest gains. The U.S. benchmark closed little changed after attempting to rebound from a near 2% drop Wednesday sparked by Federal Reserve meeting minutes that suggested the central bank is ready to raise rates sooner and higher than previously expected. Ten-year Treasury yields dipped to 1.71%, still set for their biggest weekly jump since 2020.
The dollar edged lower, while oil climbed to a seven-week high on supply constraints. The yen pared some of its overnight gains. Gold and Bitcoin were little changed.
An overtly hawkish stance from the Fed has roiled financial markets at the start of a new year, with investors reassessing how to price assets in an environment of rising interest rates. The removal of crisis-era accommodation marks a shift not seen in at least three years, a time that also saw a spike in volatility.
“We knew coming into 2022 that the Fed was going to be a creator of volatility within the market and we’re seeing that right out of the gate at the start of the year,” Lindsey Bell, chief markets and money strategist at Ally, said by phone. “The good news is that today things seem to be stabilizing a little bit after yesterday’s knee-jerk reaction.”
Comments by regional Fed presidents provided some additional insight Thursday as traders attempted to predict a possible schedule for tightening. St. Louis Fed President James Bullard, a more hawkish policy maker, said in a speech the central bank could raise its target interest rate as soon as March. Meanwhile, San Francisco Fed President Mary Daly said at a virtual event that trimming the Fed balance sheet would come after normalizing the Fed funds rate.
Nicholas Colas, co-founder of DataTrek Research, urged investors to tread “very carefully” the next few days.
“Markets are concerned that we’ve never seen the Federal Reserve both lift interest rates off zero and reduce the size of its balance sheet at the same time,” he wrote. “We’re not predicting a meltdown, but we get why the market swooned.”
Investors are also looking for signs that more Americans are returning to the labor force and helping employers to fill a near-record number of open positions. Friday’s monthly jobs report from the Labor Department is currently forecast to show that the U.S. added 405,000 private payrolls in December.
What to watch this week:
- U.S. employment data Friday
- Fed’s Daly discusses monetary policy on a panel Friday
- ECB’s Schnabel speaks on a panel Saturday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% at 11:05 a.m. Tokyo time. The S&P 500 closed little changed
- Japan’s Topix Index fell 0.6%
- S&P/ASX 200 climbed 1.2%
- Korea’s Kospi Index rose 1%
- Hang Seng Index rose 0.6%
- CSI 300 Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.1298
- The British pound rose 0.1% to $1.3550
- The Japanese yen fell 0.1% to 115.94 per dollar
- The offshore yuan rose 0.1% to 6.3871 per dollar
Bonds
- The yield on 10-year Treasuries fell one basis point to 1.71%
Commodities
- West Texas Intermediate crude rose 0.7% to $79.98 a barrel
- Gold was flat at $1,791 an ounce
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