(Bloomberg) — U.S. equity-index futures rose and the dollar fell as risk-taking returned to markets at the end of a turbulent week, with investors weighing U.S. employment gains against the Federal Reserve’s policy-tightening plans.
March contracts on the Nasdaq 100 and S&P 500 indexes climbed 0.2%. Treasuries were steady, with the two-year yield heading for the biggest weekly spike since October 2019. Discovery Inc. rose in New York premarket trading after BofA Global Research recommended the stock. Crude oil headed for the longest streak of weekly gains since October on tightening supplies.
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 traded 0.3% lower on Friday as travel and real estate companies posted some of the biggest losses. The gauge has had a bumpy first week of the year, pulling back from three consecutive record highs. In addition to watching the Fed, the region’s investors are monitoring Covid-19 developments, with Germany poised to tighten restrictions on access to restaurants and cafes.
Consumer prices in the euro area jumped 5% from a year earlier in December, adding pressure on the ECB to join a growing legion of central banks from the Fed to the Bank of England in tightening monetary conditions. The euro was marginally higher against the greenback.
Discovery climbed 3.8% in early trading after BofA raised the stock to buy with a price target of $45, implying a 75% gain. Absci Corp. jumped 48% after announcing a research agreement with Merck & Co.
Oil was on course for a third weekly increase amid supply constraints. Gains in commodities and emerging-market stocks further underscored the Friday rebound in risk sentiment.
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
- Futures on the S&P 500 rose 0.2% as of 7:22 a.m. New York time
- Futures on the Nasdaq 100 rose 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.1300
- The British pound rose 0.1% to $1.3547
- The Japanese yen was little changed at 115.78 per dollar
Bonds
- The yield on 10-year Treasuries was little changed at 1.73%
- Germany’s 10-year yield was little changed at -0.06%
- Britain’s 10-year yield was little changed at 1.15%
Commodities
- West Texas Intermediate crude rose 0.8% to $80.08 a barrel
- Gold futures rose 0.2% to $1,792.20 an ounce
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