U.S. Futures Slip on Inflation Fear Ahead of Jobs: Markets Wrap

(Bloomberg) -- U.S. futures fell with bonds Friday as risk aversion and volatility gripped markets beset by inflation and growth fears. 

Contracts on the S&P 500 and Nasdaq 100 pointed lower the day after a rout that slashed 3.5% off the S&P and 5% from the Nasdaq. Treasuries extended a tumble that’s lifted the benchmark yield past 3% and the dollar erased an early gain.

The next pressure point for markets is Friday’s U.S. jobs report, which will be closely watched for signs that rising wage costs are adding to the inflationary pressures rattling investors. Estimates by economists are looking for payrolls to expand by 380,000 in April, and the unemployment rate to fall to 3.5%.

Even though the labor market remains hot and the American consumer has been resilient, fears are running high that the U.S. economy cracks under higher rates -- and the prospect that those rates won’t be enough to cool the fastest inflation in four decades. 

“Any upward pressure on the average hourly earnings could lead to another spike of U.S. yields and therefore add negative pressure on equities and especially tech stocks,” said Christophe Barraud, chief economist at Market Securities LLP in Paris.

The raging global energy crisis and ever-more hawkish central banks are fanning fears key economies will slide into 1970s-style stagflation. A European Central Bank Governing Council member Friday said interest rates may be raised back above zero by year end, a move that would be in line with current market expectations.

The toxic mix of rising costs, falling employment and slow growth may seem a distant risk, yet a surprise contraction in U.S. economic growth last quarter bolsters the bearish outlook.

West Texas Intermediate crude topped $110 a barrel on supply concerns stemming from a European Union proposal to punish Russia for the invasion of Ukraine.

Read more: Stagflation Fear Fuels Big Stock Reversal as Post-Fed Cheer Ends

Meanwhile, European stocks extended their losses and were poised for the worst weekly drop in two months.

The U.S. central bank this week raised interest rates by the most since 2000 while pushing back against talk of super-sized increases. That was only enough to lift markets for a day before the reality of tightening financial conditions set in.

“The Fed is attempting to land a B52 bomber on a piece of string and most risk markets still have their fingers in their ears and their hands over their eyes,” said James Athey, a London-based investment director at abrdn. “Hope is not a strategy.”

Some of the main moves in markets: 

Stocks

• Futures on the S&P 500 fell 0.3% as of 6:53 a.m. New York time
• Futures on the Nasdaq 100 fell 0.5%
• Futures on the Dow Jones Industrial Average fell 0.2%
• The Stoxx Europe 600 fell 1.2%
• The MSCI World index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.5% to $1.0594
• The British pound was little changed at $1.2373
• The Japanese yen was little changed at 130.31 per dollar

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.08%
• Germany’s 10-year yield advanced four basis points to 1.09%
• Britain’s 10-year yield declined one basis point to 1.95%

Commodities

• West Texas Intermediate crude rose 2% to $110.41 a barrel
• Gold futures rose 0.4% to $1,883.20 an ounce

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