(Bloomberg) — U.S. equity-index futures declined and European stocks opened lower as investors bet Friday’s U.S. jobs data would do little to change the Federal Reserve’s path toward faster-than-expected tightening.
March contracts on the technology-heavy Nasdaq 100 Index fell 0.4%, while S&P 500 futures lost 0.1%. Europe’s Stoxx 600 gauge slid for a second day, set for the worst week since November. Treasuries were steady, with the two-year yield heading for the biggest weekly spike since October 2019. A weaker dollar and gains for emerging-market stocks signaled some risk-taking had returned after the turbulence earlier in the week.
U.S. hiring may have more than doubled in December from the previous month to 447,000 new jobs, projections for nonfarm payrolls show. The release would follow the ADP Research Institute data that showed companies added the most positions in seven months. With Fed officials preparing for aggressive rate hikes and a contraction of the central bank’s balance sheet, markets expect little chance of a change of heart even if Friday’s figures come in below expectations.
“A low figure, around 100,000-200,000, wouldn’t change the direction the Fed is preparing to take,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “However, a strong NFP print, and a beat on unemployment rate, have the power of boosting the Fed hawks, on the idea that the jobs market no longer needs the Fed’s support.”
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.
Europe’s equity benchmark fell 0.5% on Friday as travel and real estate companies posted some of the biggest losses. Stocks in the region have had a bumpy first week of the year, with the gauge posting back-to-back losses following three consecutive record highs. In addition to watching the Fed, investors are monitoring Covid-19 developments, with Germany poised to tighten restrictions on access to restaurants and cafes.
The dollar edged lower, while oil climbed to a seven-week high on supply constraints. The yen pared some of its overnight gains. Gold was slightly weaker.
Bitcoin fell to its lowest level since September, dropping to nearly $41,000 at one point.
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
- The Stoxx Europe 600 fell 0.5% as of 8:37 a.m. London time
- Futures on the S&P 500 fell 0.1%
- Futures on the Nasdaq 100 fell 0.4%
- Futures on the Dow Jones Industrial Average were unchanged
- The MSCI Asia Pacific Index rose 0.4%
- The MSCI Emerging Markets Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.1308
- The Japanese yen was little changed at 115.82 per dollar
- The offshore yuan rose 0.2% to 6.3824 per dollar
- The British pound was little changed at $1.3540
Bonds
- The yield on 10-year Treasuries was little changed at 1.73%
- Germany’s 10-year yield was little changed at -0.05%
- Britain’s 10-year yield was little changed at 1.16%
Commodities
- Brent crude rose 0.3% to $82.27 a barrel
- Spot gold fell 0.1% to $1,788.99 an ounce
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