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Stocks flat, oil gains as rate hikes loom following strong jobs data

Published 07/07/2022, 10:20 PM
Updated 07/08/2022, 04:41 PM
© Reuters. FILE PHOTO: Men wearing protective masks amid the coronavirus disease (COVID-19) outbreak, use mobile phones in front of an electronic board displaying Japan's Nikkei index outside a brokerage in Tokyo, Japan June 16, 2022. REUTERS/Kim Kyung-Hoon

© Reuters. FILE PHOTO: Men wearing protective masks amid the coronavirus disease (COVID-19) outbreak, use mobile phones in front of an electronic board displaying Japan's Nikkei index outside a brokerage in Tokyo, Japan June 16, 2022. REUTERS/Kim Kyung-Hoon

By Pete Schroeder

WASHINGTON (Reuters) - Wall Street ended the day flat on Friday as Treasury yields jumped following a stronger-than-expected U.S. jobs report, which suggested the Federal Reserve may push further interest rate hikes to cool the economy and slow inflation.

Oil prices rose over 2% on Friday, but still were down on the week following a steep sell-off days earlier on concerns about energy demand in a potential economic slowdown.

Strong data from the U.S. Labor Department, which reported the United States added more jobs than expected in June, indicated a recession was not yet imminent amid persistent job growth, and gives the Fed scope to deliver another large interest rate increase later this month.

Nonfarm payrolls jumped by 372,000 jobs in June, well above economists' expectations. The unemployment rate held steady at 3.6%.

All three U.S. stock indices ended the week largely unchanged, as investors balanced solid economic news with the prospect of more rate hikes.

The Dow Jones Industrial Average ended down 0.15%, while the S&P 500 dropped 0.1% and the Nasdaq Composite added 0.12%.

"There has been a lot of doom and gloom recently, so a strong labor market read may assuage some fear of a recession and shows the resilient nature of our economy with a robust labor market in the face of hot inflation. The Fed is committed to raising rates aggressively to cool it, which will likely result in continued volatility," said Mike Loewengart, managing director at E*TRADE from Morgan Stanley (NYSE:MS).

Atlanta Fed President Raphael Bostic said on Friday he backed another three quarters of a percentage point interest rate increase, underlining the Fed's determination in tackling inflation.

Oil prices enjoyed a reprieve, but still ended the week lower after a steep sell-off earlier in the week on concerns over dwindling demand.

Brent crude was up 2.3% to settle at $107.02 a barrel. U.S. crude rose 2% to settle at $104.79 per barrel.

The dollar index was flat on the day after earlier hitting its highest level since 2002. And the euro drew close to parity with dollar last seen in mid-2002, having fallen 3% against the dollar this week on economic and energy concerns emanating from Europe. The euro was last up 0.19% at $1.01805.

Looming rate hikes also helped push Treasury yields higher, as a key part of the yield curve tracked as a recession indicator inverted further. Benchmark 10-year yields were last at 3.0822%, up from around 2.989% before the data. Two-year yields jumped to 3.0985%, from around 3.001%.,

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 10, 2022.  REUTERS/Brendan McDermid

The two-year, 10-year part of the Treasury yield curve inverted on Tuesday for the first time in three weeks. An inversion in this part of the curve is seen as a reliable indicator that a recession will follow in one to two years.

The MSCI world equity index, which tracks shares in 45 nations, was up 0.12%.

Latest comments

Let’s cooperate by keeping the oil price low! We should not commit collective economic suicide in the name of greed. Here’s a research data about how the high oil prices are a cause of recessions. ”Yield curve inversions are often viewed as a cause of recessions, when in fact, they are better thought of as a symptom of the conditions that tend to lead into recessions. On the other hand, spikes in oil prices have historically been a cause of recessions. The chart below shows the real (inflation-adjusted) Bloomberg crude oil price percentage change from its 24-month moving average. As you can see (denoted by the yellow dotted line), only once (in August 2005) since the early 1970s did the change move above 50% without a recession on its way or already underway.” https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/032122_h_crude%20price.png Source: https://www.schwab.com/learn/story/recession-blues-unfounded-fear
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