The dollar strengthened and government bonds tightened ahead of Friday’s US jobs data, which will be closely watched by rate setters at the Federal Reserve.
The US dollar index, which measures the currency against its competitors, rose Wednesday, posting a monthly gain of nearly 3 percent.
Investors also bought government debt, which – like the dollar – tends to rise when uncertainty causes investors to refrain from buying riskier assets.
The yield on the 10-year US Treasury bill, which moves inversely relative to price, at one point fell 0.04 percentage points to 1.44 percent, before declining slightly to about 1.46 percent. The equivalent return on German Bunds fell 0.03 percentage point to minus 0.20 percent.
Economists polled by Bloomberg expect Friday’s nonfarm payrolls report to show that U.S. employers added just over 700,000 jobs in June, up from 559,000 a month earlier.
But fund managers have become hesitant to make big bets ahead of the jobs report as economists’ forecasts for April payrolls proved wildly inaccurate, which also came in significantly below forecasts for May.
“The jobs data has become very difficult to predict,” said Ken Taubes, US Chief Investment Officer for Amundi. “We’ve been wrong with hundreds of thousands of professional economists.”
ADP’s national employment report on Wednesday found that US private sector employers added 692,000 jobs in June, down from 886,000 a month earlier, but ahead of economists’ expectations of a 600,000 increase.
Michael Pearce, senior US economist at Capital Economics, warned that the ADP survey in recent months had completely missed “the labor shortage slowdown in wage increases that is evident in the official numbers.”
“So we would treat the study with an even greater dose of skepticism than usual,” he said.
David Lefkowitz, head of equities at UBS Global Wealth Management, said Friday’s weak report could push expectations around the Fed’s timeline to tighten monetary policy.
A majority of economists surveyed in the first The Washington City Times-IGM survey see a 75 percent or greater chance of at least two rate hikes in the US by the end of 2023, consistent with the so-called dot plot of individual projections of the central bank.
On Wall Street, the blue-chip S&P 500 closed 0.1 percent higher on Wednesday. The index’s gains surpassed 2 percent in June, marking the fifth straight month of gains.
The tech-heavy Nasdaq Composite, meanwhile, fell 0.2 percent, after hitting a new all-time high this week. On the other side of the Atlantic, the region-wide Stoxx Europe 600 fell 0.8 percent.
Analysts have raised their 2021 earnings per share forecasts for companies by 15 percent since January, Citi said, as companies benefit from the reopening of the economy and the rollout of vaccines. Earnings expectations have risen most for companies whose fortunes are tied to economic cycles, such as industrial groups and material producers, Citi found.
But the prices of corporate equity and debt instruments have already risen so high on this optimism that “everywhere you look there’s nothing left in terms of value,” said Tatjana Greil Castro, co-head of public markets at Muzinich & Co.
“So now it’s all about the Fed and how much liquidity they will continue to pump into the markets,” she said.
Global oil marker Brent oil added 0.5 percent to $75.13 a barrel, trading near its highest since April 2019, as buyers shook off concerns about the spread of the Delta variant of Covid-19 to focus on a decline in US oil supplies.
Additional reporting by Shubham Saharan in New York
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