Wall Street stocks close slightly lower; jobs data strong but rates still high

NEW YORK, June 10 (Reuters) – Wall Street stocks ended slightly lower on Friday in choppy trading after stronger-than-expected U.S. jobs data pointed to a robust economy but prompted worries the Federal Reserve may wait longer to cut interest rates than many investors had hoped.

The U.S. economy generated about 272,000 jobs in May, far more than the 185,000 analysts had forecast, according to a Labor Department report. The unemployment rate inched up to 4%.

The benchmark S&P 500 slipped immediately after the report while U.S Treasury yields climbed as traders slashed bets on a September rate reduction. The index recovered and briefly hit a fresh intraday record high as investors noted the data pointed to underlying economic health.

It finished slightly lower, with the utilities, materials, and communication services stocks among the biggest drag. Financials and technology advanced ahead of others.

For the week, the S&P 500 gained 1.32%, Nasdaq rose 2.38%, and the Dow added 0.29%.

“This tells you there’s certainly not going to a cut in the short term, and with the bond yields going back up it’s putting a lot of pressure on the risk-on trade, which is probably small caps,” said Sandy Villere, portfolio manager at Villere & Co in New Orleans.

“It’s just a function of interest rates and maybe a little higher for longer, and people have to recalibrate for that type of environment,” he added.

Traders now see a 56% chance of a September rate reduction, according to the CME’s FedWatch tool. Investors will eye U.S. inflation data next week and the Federal Reserve’s two-day policy meeting, which ends on June 12.

“No one expects the Fed to cut (rates next week), but will they open the door for a cut as soon as September is the big question on everyone’s mind,” said Ryan Detrick, chief market strategist at the Carson Group, adding he still sees a September reduction on the table.

The Dow Jones Industrial Average fell 87.18 points, or 0.22%, to 38,798.99, the S&P 500 lost 5.97 points, or 0.11%, to 5,346.99 and the Nasdaq Composite lost 39.99 points, or 0.23%, to 17,133.13.

GameStop slumped 39% in volatile trading just as stock influencer “Roaring Kitty” kicked off his first livestream in three years. The gaming retailer had announced a potential stock offering and a drop in quarterly sales.

Other so-called meme stocks, including AMC Entertainment AMC.N and Koss, fell 15.1% and 17.4%, respectively.

Nvidia slipped, on track to extend the previous session’s losses, with its valuation again dipping below the $3 trillion mark.

Lyft shares rose 0.6%, following a forecast of 15% annual growth in its gross bookings through 2027 after markets closed on Thursday.

Declining issues outnumbered advancers by a 2.72-to-1 ratio on the NYSE. On the Nasdaq, 1,177 stocks rose and 3,064 fell as declining issues outnumbered advancers by a 2.6-to-1 ratio.

The S&P 500 posted 17 new 52-week highs and 5 new lows while the Nasdaq Composite recorded 34 new highs and 149 new lows.

Total volume of shares traded across U.S. exchanges was about 10.75 billion, compared with the 12.7 billion average over the last 20 trading days.

BOJ may drop clues on bond tapering plan next week, sources say

TOKYO, June 10 – Bank of Japan policymakers are brainstorming ways to slow its bond buying and may offer fresh guidance as early as next week, sources familiar with its thinking said, in what would be a first key step to reducing its almost $5 trillion balance sheet.

While details are not finalised, the central bank could trim monthly purchases or clarify plans to proceed with a slow but steady taper with a focus on preventing abrupt yield spikes, the four sources said.

Any such decision could lay the groundwork for the BOJ, which lags way behind counterparts in tightening monetary policy, to shrink its 750-trillion-yen ($4.8 trillion) balance sheet that is nearly 1.3 times the size of Japan’s economy.

The topic will likely take centre stage at the BOJ’s next policy meeting on June 13-14. The board may delay a decision, however, if Japan’s bond market faces renewed volatility, they said.

“The BOJ has already decided to taper at some point, so it’s only a question of timing,” said one of the sources.

“Much will depend on market conditions at the time, as the key would be to avoid causing market turbulence,” another source said, a view echoed by two more sources. The sources spoke on condition of anonymity due to the sensitivity of the matter.

At next week’s meeting, the BOJ is expected to maintain short-term interest rates in a 0-0.1% range as it awaits more data showing wage hikes broadening and inflation durably at its 2% target, the sources said.

Conditions seem to be falling into place for tapering. After hitting a 13-year high of 1.1% last week, the 10-year Japanese government bond (JGB) yield is now below 1%, in line with falling U.S. Treasury yields.

But market risks persist, including Friday’s U.S. nonfarm payrolls data and the Federal Reserve’s policy-setting meeting on Wednesday.

‘CONSTRUCTIVE AMBIGUITY’

In March, the BOJ ended eight years of negative interest rates and yield curve control (YCC), a policy that caps the benchmark 10-year yield around 0% with huge bond buying.

But it pledged to keep buying roughly 6 trillion yen worth of government bonds per month – just enough to maintain its balance sheet.

Three months after that decision, the board will debate whether markets are ready for a full-fledged tapering in bond purchases, the sources said.

A further cut would mean the BOJ moves to quantitative tightening (QT), reducing a balance sheet that is now five times the Fed’s in ratio-to-GDP terms.

BOJ Governor Kazuo Ueda has repeatedly said the bank will eventually slow bond purchases, a stance he reaffirmed on Thursday, but has given no clues on timing.

The topic was debated at the BOJ’s April policy meeting with some members calling for reduced bond buying or guidance on how the bank would do so, according to a summary from the meeting.

Underscoring their desire to start tapering, Ueda and his deputy Ryozo Himino both said on Tuesday that bond yields ought to be driven by market forces.

Himino, however, also said the BOJ needed to be wary of “discontinuity” and unintended consequences.

The BOJ could gradually reduce bond buying, while making clear it stands ready to step in with emergency purchases if bond yields rise too quickly, the sources said.

However, for the BOJ, tapering is made harder by markets becoming accustomed to its heavy-handed intervention that has kept borrowing costs ultra-low.

A dire fiscal situation also means the BOJ must avoid sharp yield spikes that would boost financing costs for Japan’s huge public debt.

As such, the BOJ likely won’t follow the Fed, which set a fixed schedule to shrink its balance sheet under a pre-determined plan from a peak of nearly $9 trillion yen to $7.4 trillion as of March.

Preferring a more discretionary approach, the BOJ will likely offer looser guidance on tapering, instead of providing a detailed timetable spanning years, the sources said.

“Constructive ambiguity is key here,” said former BOJ official Nobuyasu Atago. “The BOJ will probably choose language that leaves itself flexibility to adjust the pace of tapering, while allowing long-term yields to rise gradually.”

Oil settles higher on hopes Fed will track European Central Bank rate cuts

HOUSTON – Oil settled up 2% on Thursday after the European Central Bank opted to cut interest rates, spurring hopes that the Fed will follow suit, and OPEC+ ministers reassured investors the latest oil output agreement could change depending on the market.

Brent crude futures settled USD 1.46 higher or 1.86% at USD 79.87 a barrel. US West Texas Intermediate crude futures settled up USD 1.48 or 2% at USD 75.55.

On Thursday, the European Central Bank went ahead with its first interest rate cut since 2019, citing progress in tackling inflation but cautioning the fight was far from over.

Denmark’s central bank then lowered its benchmark interest rate by 25 basis points to 3.35%.

Analysts in the US saw the European rate cuts as a likely precursor to Fed rate cuts.

Lower fuel costs and an easing of post-pandemic supply snags have helped drive inflation down to 2.6% in the 20 countries using the euro, from 10% in late 2022.

Investors are now less certain than they were a few weeks ago that inflation has retreated enough for the ECB to institute a major easing cycle. In the US, economists predict the Federal Reserve will cut rates in September, according to Reuters’ May 31-June 5 poll.

“Today the ECB rate cuts are helping, and casting a view that the Fed will finally follow suit here in the US as well which is supportive, but both central banks are cutting in the face of a slowing economy which is not necessarily supportive of oil demand,” said John Kilduff, partner at Again Capital.

The number of Americans filing new claims for unemployment benefits rose last week, and first-quarter unit labor costs rose by less than previously thought, the Labor Department said.

While this shows a cooling labor market, it is unlikely to push the Fed to start rate cuts.

Meanwhile, trading house Trafigura’s chief economist Saad Rahim said the OPEC+ decision to phase out some output cuts, combined with strong fuel supplies, has driven oil prices lower.

OPEC+, the Organization of the Petroleum Exporting Countries and allies, agreed on Sunday to extend most production cuts into 2025 but left room for voluntary cuts from eight members to be unwound gradually.

Saudi Energy Minister Prince Abdulaziz bin Salman said on Thursday that OPEC+ can pause or reverse production increases if it decides the market is not strong enough.

And Russian Deputy Prime Minister Alexander Novak said the group might adjust the deal if necessary, adding that the post-meeting price drop was caused by misinterpretation of the agreement and “speculative factors”.

“Oil markets have overreacted to the mildly negative OPEC+ meeting outcome. Demand indicators have certainly softened somewhat recently, but are not falling off a cliff,” Barclays analyst Amarpreet Singh wrote in a note.

Elsewhere, a merchant vessel reported that an explosion took place near it in the Red Sea on Thursday about 19 nautical miles west of the Yemeni port city of Mokha, British security firm Ambrey said.

The vessel fit the target profile of Yemeni Houthi militants, Ambrey said in a note. Militants have attacked ships off the country’s coast for several months in solidarity with Palestinians fighting Israel in Gaza.

The vessel was en route from Europe to the United Arab Emirates.

“This puts more risk on top of a market that was already nervous,” said Phil Flynn, an analyst at Price Futures Group. “And if it turns out to be an oil tanker, this will probably raise the stakes,” he added.

(Reporting by Georgina McCartney in Houston, Deep Vakil in Bengaluru, Robert Harvey in London, and Jeslyn Lerh in Singapore; Additional reporting by Colleen Howe in Beijing; editing by Varun H K, Jason Neely, David Gregorio, Lisa Shumaker, and Deepa Babington)

Investors queued up for US high-yield bond funds as rate cut hopes grow

US high-yield bond funds enjoyed the biggest inflows of the year in May, driven by the allure of higher yields, potential for price appreciation amid anticipated Federal Reserve rate cuts, and diminishing corporate credit risks.

According to LSEG Lipper data, US high-yield bond funds attracted USD 5 billion in inflows in May, the highest since December. From January to May this year, the total inflows reached USD 6.1 billion, marking the highest in three years.

“Combined with the attractive outright yields available, compared to 5 and 10-year averages, we are seeing investor confidence that strong corporate profits, together with an easing Fed, should provide an environment for default expectations to decrease,” said Chris Romanelli, portfolio manager at Loomis Sayles.

He also added that the expectations for Fed rate cuts have helped to fuel demand for floating rate credit which has increasingly been utilized in high yield bond funds.

S&P Global Ratings expects the US trailing 12-month speculative-grade corporate default rate to fall to 4.5% by March 2025, from 4.9% in April 2024.

Last month, the iShares iBoxx USD High Yield Corporate Bond ETF HYG led the pack with approximately USD 1.99 billion in inflows. Meanwhile, the iShares Broad USD High Yield Corporate Bond ETF and SPDR Portfolio High Yield Bond ETF garnered USD 1.09 billion and USD 537 million in net inflows, respectively.

According to the ICE BofA Global high-yield bond index, US high-yield bonds still offer over 310 basis points premium over 10-year US Treasury notes, buoying investor enthusiasm in these riskier junk bonds, amid fading recession fears and improved economic conditions.

Analysts expect that lower interest rates, stemming from potential Fed rate cuts, would benefit high-yield bond issuers by enhancing liquidity and easing the cash flow constraints that have intensified due to the Federal Reserve’s previous rate hikes.

However, the narrowing of yield spreads for high-yield bonds has deterred some investors from placing their money in high-yield bonds.

Mark Durbiano, head of the domestic high-yield group at Federated Hermes, said the biggest challenge for the high-yield bond market moving forward is historically tight credit spreads.

“Because we believe credit spreads are relatively close to all-time tights and reflect a “perfect landing” in the economy and inflation, we are reducing the overall risk in our high-yield portfolios,” he said.

“Although spreads are historically tight, especially in the higher quality portions of the index, a 7-7.5% carry provides a fairly decent cushion for spread widening compared to what we were accustomed to during most of the quantitative easing era,” said Adam Abbas, portfolio manager at Harris Associates.

“This makes the asset class attractive for those seeking absolute value and total returns.”

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Josie Kao)

Gold hits two-week high; payrolls data in focus

Gold prices climbed to a two-week high on Thursday as weaker-than-expected US jobs data fanned hopes of a Federal Reserve interest rate cut later this year with the focus shifting to non-farm payrolls data due on Friday.

Spot gold was up 0.8% at USD 2,372.46 per ounce as of 1757 GMT.

US gold futures settled 0.6% higher at USD 2,390.90.

Data on Wednesday showed US private payrolls increased less than expected in May while data for the prior month was revised lower.

“Yesterday’s weaker ADP jobs number gave the bulls a little bit of confidence that maybe tomorrow’s (payroll) report won’t be stronger than expected, and that’s going to be friendly for the gold and silver markets,” said Jim Wyckoff, senior analyst at Kitco Metals.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

“If we were to see a much stronger than expected jobs report, the expectation would be then that the Fed may not be able to lower rates sooner than later” which could add some light pressure to the gold market, said David Meger, director of alternative investments and trading at High Ridge Futures.

The Fed will likely cut its key interest rate in September and once more this year, according to a majority of forecasters in a Reuters poll.

Gold prices are expected to hit another record high this year, despite a dip in physical demand, consultancy Metals Focus said.

Meanwhile, global stocks hit an all-time high and the euro rose after the European Central Bank cut interest rates for the first time in nearly five years, but also signaled that further moves could take a while.

Among other precious metals, spot silver rose 4.3% to USD 31.30 per ounce and platinum was up 1.6% at USD 1,007.70, while palladium rose 0.2% to USD 933.56.

(Reporting by Rahul Paswan in Bengaluru; Editing by Sriraj Kalluvila, Ravi Prakash Kumar, and Matthew Lewis)

Yields edge down before Friday’s US jobs report

Benchmark US 10-year Treasury yields dipped on Thursday as investors waited to see if Friday’s employment report for May would show cooling in the labor market as traders bet on Federal Reserve rate cuts later this year.

Bonds have rallied this week as investors price for the likelihood that the Fed could begin cutting rates as soon as September as the economy softens.

Inflation easing closer to the US central bank’s 2% annual target is key to when the Fed cuts and how many rate reductions are likely this year.

“The next month or two in terms of data is going to be very, very telling,” said Scott McIntyre, senior portfolio manager at HilltopSecurities Asset Management in Austin, Texas.

“We’re at this pivot point where investors are wondering whether the hot first quarter numbers are going to cool in the second quarter,” McIntyre said. “We’re just now getting numbers for May so that hasn’t been determined yet.”

Benchmark 10-year note yields were last down 1 basis point on the day at 4.281%. They got as low as 4.275% on Wednesday, the lowest since April 1.

Two-year note yields dipped 1 basis point to 4.720% and got as low as 4.718%, the lowest since May 16.

The inversion in the two-year, 10-year yield curve narrowed 1 basis point to minus 44 basis points.

Traders said that the absence of fresh Treasury supply had supported the market this week after some soft bond auctions last week.

However, investors have also positioned for softer jobs data on Friday, with the possibility that jobs gains will come in below the median economist forecast of 185,000 jobs.

April’s report showed that jobs growth slowed more than expected, with 175,000 jobs gains, the fewest in six months.

Economists at Goldman Sachs said on Thursday that they expect 160,000 job additions in May.

“When the labor market is tight, job growth tends to slow disproportionately during the spring hiring season and particularly in May – when the seasonal factors expect more hiring than is realistic with fewer workers available,” they said in a report.

Data this week has pointed to more balance in the labor market.

The ADP Employment Report on Wednesday showed that private payrolls increased by 152,000 jobs last month, below economists’ forecasts for 175,000 in jobs gains.

A survey on Tuesday also showed that job openings, a measure of labor demand, were down 296,000 to 8.059 million on the last day of April, the lowest level since February 2021.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased last week. US worker productivity also grew slightly less than previously estimated in the first quarter but exceeded market expectations, and unit labor costs rose by less than first thought.

Wage data in Friday’s jobs report will be closely watched as inflation remains the key focus for Fed policy.

“Average hourly earnings realistically are probably the most important component, I think, because that feeds into inflation, and inflation right now is priority one for the Fed,” McIntyre said.

Next week’s consumer price index (CPI) report for May will then be key to guiding near-term Fed expectations. Fed officials have stressed that they want to see several months of improving inflation before easing policy.

The consumer price inflation report will come on Wednesday, before the US central bank is due to complete a two-day policy meeting at which Fed officials will update their economic and interest rate projections.

(Reporting By Karen Brettell; Editing by Christina Fincher, Will Dunham and David Evans)

India rate decision rounds off wild week

An interest rate decision in India and Chinese trade figures are the main events for investors in Asia on Friday, rounding off a tumultuous week globally that saw an explosion of political volatility in the emerging world, heightened worries over US growth, and world stocks hitting new highs.

Asian markets go into Friday mostly on the front foot – the MSCI Asia ex-Japan index is up nearly 3% this week, the Hang Seng tech index is up almost 5% and, despite the political fireworks, Indian stocks are in the green.

Capital is flowing into emerging markets.

Japanese and Chinese stocks are struggling more, however. Expectations of tighter monetary policy and a stronger yen are capping the Nikkei, while economic gloom continues to weigh heavily on Chinese equities.

The Reserve Bank of India is widely expected to keep its key interest rate on hold at 6.50% on Friday, before cutting just once later in the year, probably in the fourth quarter, according to a Reuters poll.

With near-8% growth and above-trend inflation, there is little urgency for the RBI to begin cutting rates yet. Nor is there much incentive to move before the Fed, especially with the rupee languishing around record lows.

But with the Bank of Canada and European Central Bank lowering rates this week, following the Swiss National Bank, the global ‘higher for longer’ mantra may be losing its oomph.

US rates traders are now fully pricing in 50 basis points of easing from the Fed this year – one quarter-point cut likely coming in September, before the Presidential election, and two by the Dec. 17 to 18 policy meeting.

The 2-year US Treasury yield has now fallen six days in a row. That’s the longest uninterrupted decline going back to late last year, according to Tradeweb data, or back to March 2020, according to Reuters/Refinitiv indicative pricing.

The one G7 central bank going the other way is the Bank of Japan. Governor Kazuo Ueda said the central bank should reduce its huge bond purchases as it moves toward an exit from massive monetary stimulus, reinforcing his resolve to steadily scale back its nearly USD 5-trillion balance sheet.

The remarks keep alive expectations the central bank could embark on a full-fledged tapering of its bond-buying as early as its policy meeting next week.

But having driven yields higher this year, Japanese Government Bond bears have gone into retreat as global yields have fallen – the two-year and 10-year JGB yields have slipped every day this week.

China’s trade data, meanwhile, will be closely watched for signs that activity is picking up after months of disappointing numbers. Exports are seen rebounding strongly, rising 6.0% year-on-year, but import growth is expected to halve to 4.2%.

Here are key developments that could provide more direction to markets on Friday:

– India interest rate decision

– China trade (May)

– Japan household spending (April)

(Reporting by Jamie McGeever; Editing by Josie Kao)

Nvidia overtakes Apple as No. 2 most valuable company

Nvidia’s rallied to record highs on Wednesday, with the artificial intelligence chipmaker’s valuation breaching the USD 3 trillion mark and overtaking Apple to become the world’s second most valuable company.

Nvidia is preparing to split its stock ten-for-one, effective on June 7, a move that could increase its appeal to individual investors.

The surge in Nvidia’s market value above Apple’s marks a shift in Silicon Valley, which the company co-founded by Steve Jobs has dominated since it launched the iPhone in 2007.

Nvidia’s stock rose 5.2% to end the day at USD 1,224.40, valuing the company at USD 3.012 trillion. Apple’s market capitalization was last at USD 3.003 trillion after its stock climbed 0.8%.

Microsoft, based in Redmond, Washington, remained the world’s most valuable company at USD 3.15 trillion after its shares climbed 1.9%.

“Nvidia is making money on AI right now, and companies like Apple and Meta are spending on AI,” said Jake Dollarhide, chief executive officer at Longbow Asset Management.

“It may be a foregone conclusion that Nvidia will overtake Microsoft as well. There’s a lot of retail money that’s piling in on what they see as a straight shot up.”

Nvidia’s stock has surged 147% so far in 2024, with demand for its top-of-the-line processors far outstripping supply as Microsoft, Meta Platforms, and Google-owner Alphabet race to build out their AI computing capabilities and dominate the emerging technology.

It has rallied nearly 30% just since May 22, when Nvidia issued its latest stellar revenue forecast.

Nvidia added nearly USD 150 million in market capitalization on Wednesday, more than the entire value of AT&T.

Optimism about AI lifted chip stocks broadly on Wednesday, with the PHLX chip index surging 4.5%. Super Micro Computer, which sells AI optimized servers built with Nvidia chips, climbed 4%.

Nvidia CEO Jensen Huang this week was the subject of wall-to-wall coverage on Taiwanese television and was mobbed by attendees when he visited the Computex tech trade fair in Taipei, where he was born before moving to the United States.

While Nvidia rides a wave of AI enthusiasm on Wall Street, Apple is struggling with weak demand for iPhones and tough competition in China, the world’s biggest smartphone market.

Some investors also view Apple as lagging other technology heavyweights as they rush to build AI features into their products and services.

Analysts’ projections for Nvidia’s future earnings have outpaced its stellar stock gains. Nvidia is trading at 39 times expected earnings, making it less expensive on that basis than a year ago, when it traded at over 70 times expected earnings, LSEG data showed.

(Reporting by Noel Randewich in Oaklnad, Calif.; Additional reporting by Sinead Carew in New York; Editing by Nick Zieminski and Richard Chang)

Unwinding of hugely popular currency trade rocks markets

LONDON – A sharp drop in Mexico’s currency after a landslide election result has shaken foreign exchange markets as far as Hungary and Turkey this week, leaving investors asking whether the unwinding of hugely popular “carry trades” will continue.

A carry trade involves investors borrowing in currencies that have low interest rates, such as the Japanese yen or Swiss franc, and buying higher-yielding ones such as the Mexican peso or, recently, the US dollar. It has boomed in popularity as interest rates have diverged around the world and market volatility has stayed low.

Yet the peso’s dramatic fall against the yen this week – it dropped 4.4% on Monday in its biggest daily decline since the COVID-19 crisis – is a sign that investors have been rapidly backing out of some of their favorite, and most lucrative, trades.

Pockets of volatility remained on Wednesday, with the yen falling sharply against the dollar, leaving investors to consider whether the old approach is still viable.

“The generalized rise in emerging market FX volatility … has prompted de-leveraging in carry around the world,” said Chris Turner, head of global markets at lender ING. “Where do we go from here?”

ELECTION SHOCKS

The news that Claudia Sheinbaum was set to win by a landslide in Mexico’s presidential election caused the peso to tumble, with markets spooked by possible constitutional reforms and impact on the US trade relationship.

India’s rupee also stumbled on Tuesday as it became clear that business-friendly Prime Minister Narendra Modi would lose his majority.

The twin drops caused wild swings across emerging markets, knocking other favored currencies such as Hungary’s forint HUF= and the Turkish lira. Low-yielding “funding currencies” like the yen and peso rallied, while the euro and dollar bounced around in the ripples.

Volatility is a big threat to carry trades. A rise in the currency in which investors borrow, or a fall in the one in which they invest, can wipe out gains from yield differentials.

“My sense is participants have in large part liquidated these trades and moved to flat,” said Neil Jones, a senior FX sales executive at TJM Europe. “The market is likely still holding core long-term carry trades, but certainly far reduced from 48 hours prior.”

Yet some spy an opportunity. “With the peso-yen cross having fallen 6.3% in two days, we ask if the shakeout has largely played out and if this is a time to re-engage,” said Chris Weston, head of research at Pepperstone. “That trade feels aggressive, but let’s see how Japanese traders play the yen moves today.”

MOVING PARTS

Investors will have to gauge a whole host of factors when deciding whether to return to carry trade strategies. ING’s Turner said markets will be keeping a close eye on Sheinbaum’s policies and the path of the US dollar, the main driver of global currencies.

“In Mexico, it seems local authorities are already trying to calm investors over possible fiscal concerns,” he said. “And internationally, we think the scope for slightly lower US rates and a softer dollar can support the risk environment, lower volatility, and limit a further sell-off in the carry trade.”

Also of major concern is the yen’s likely path. Another factor driving the Japanese currency higher this week has been speculation that the Bank of Japan could raise interest rates in July, with officials warning that they are watching moves in the yen closely.

Intervention remains a threat, after Japanese authorities spent USD 62 billion propping up the currency around a month ago. A rally in the yen – which has languished at 34-year lows this year – could spell more problems for the carry trade.

(Reporting by Harry Robertson; Editing by Amanda Cooper and Christina Fincher)

Yields drop as traders bets on softer jobs growth

Benchmark US 10-year Treasury yields fell to a two-month low on Wednesday after a report pointed to weaker-than-expected jobs growth ahead of Friday’s highly anticipated government employment report for May.

Yields have tumbled this week as softening economic data boosts expectations that the Federal Reserve will make two 25 basis point cuts this year.

Now the market is positioned for nonfarm payrolls on Friday to come in below economists’ projections for 185,000 jobs gains.

Traders say that the so-called whisper number, an unofficial forecast, is for employers to add around 120,000 jobs.

Economists’ projections are also widely dispersed and include some expectations around the 110,000 to 130,000 area, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

This “seems like a more likely landing point after a little bit of softness we’ve had in hiring during the week,” LeBas said.

The ADP Employment Report on Wednesday showed that private payrolls increased by 152,000 jobs last month, below economists’ forecasts for 175,000 in jobs gains.

A survey on Tuesday also showed that job openings, a measure of labor demand, were down 296,000 to 8.059 million on the last day of April, the lowest level since February 2021.

Benchmark 10-year note yields were last down 5 basis points at 4.289% and got as low as 4.287%, the lowest since April 1.

Two-year note yields fell 4 basis points to 4.731% and reached 4.726%, the lowest since May 16.

The inversion in the two-year, 10-year yield curve was little changed on the day at minus 44 basis points.

Yields briefly bounced on Wednesday after the Institute for Supply Management said its non-manufacturing purchasing managers index rose to 53.8 last month from 49.4 in April.

The ISM’s business activity index shot up 10.3 points, the largest rise since March 2021, and reached 61.2, the highest level since November 2022.

The business activity is “really driving that whole index higher,” said Ellis Phifer, managing director of fixed-income research at Raymond James in Memphis, Tennessee.

“It’s just a little bit of a fly in the ointment when we’re looking at data that’s been coming in a little bit softer than expected, especially ahead of the nonfarm payrolls coming up on Friday,” he said.

This week’s bond rally has also been driven by relief over an absence of new bond supply, after some Treasury auctions last week saw soft demand.

“This week has really just been about a lack of supply in the interest rate markets compounding a little bit of negativity on the economy,” said LeBas.

Next week’s consumer price index (CPI) for May will also be key in guiding Fed expectations in the near-term. It will come on Wednesday morning before the Fed is due to complete its two-day policy meeting, when Fed officials will update their economic and interest rate projections.

(Reporting By Karen Brettell, Editing by Franklin Paul, Nick Zieminski, and Chizu Nomiyama)

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