U.S. stocks extended declines Tuesday, while the dollar tested the highest levels against its peers in nearly a year, as markets continue to grapple with the prospect of higher Fed rates and surging Treasury bond yields.
Treasury bond yields were back on the march, following the biggest one-day rise in nearly a month on Monday, with benchmark 10-year notes trading at a fresh 2007 high of 4.788% and 2-year notes pegged at just over 5.15% following a stronger-than-expected reading of job openings data for the month of August.
Long-term yields were sharply higher, as well, with 30-year bonds trading at 4.941%, a fresh 2007 peak.
The sharp moves higher, as well as the hawkish rhetoric from Fed officials, put this week's job market data in stark focus as investors look for evidence that labor market tightness will stoke inflation pressures into the final months of the year.
The Bureau of Labor Statistics' Job Openings and Labor Turnover Survey, better-known as Jolts, showed Tuesday that around 9.6 million positions went unfilled over the month of August, up sharply from the 8.83 million recorded in July and ending a run monthly declines that began in March.
The S&P 500 was marked 70 points lower, or 1.64%, in late afternoon trading following the Jolts release while the Dow Jones Industrial Average fell 505 points. The Nasdaq was down 280 points, or 2.1%, owing to the rise in Treasury yields that genuinely hit rate-sensitive tech stocks.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.36% higher in New York trading at 107.091 and within touching distance of the highest levels since November of last year.
That move followed comments from a pair of Federal Reserve officials late Monday, including Cleveland Fed President Loretta Mester, indicating the need for higher interest rates to effectively tame inflation in the resilient U.S. economy.
“I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” Mester said in public remarks at an event in Cleveland.
The CME Group's FedWatch now suggests a 32.9% chance of a quarter point rate hike when the Fed finishes its next two-day policy meeting on November 1, with the odds of a December hike – either a quarter or half point – pegged at just under 50%.
In overseas markets, the surging dollar added to global stock pressures in many key markets, with the MSCI World index falling 0.3% to a fresh-four month low, lead by a 1.4% decline for the region-wide Asia ex-Japan benchmark.
In Japan, the Nikkei 225 ended down 1.64% as the yen slipped to a multi-year low of 149.87 against the dollar, prompting Japanese Finance Minister Shunichi Suzuki to comment on the possibility of currency intervention
Japan purchased yen to prop up the currency in international markets, the first intervention in 24 years, when it slipped below the 145 mark in September of last year.
In Europe, the Stoxx 600 was marked 1.1% at the close of Frankfurt trading while the FTSE 100 fell 0.54% even as the pound slumped to 1.2074 against the U.S. dollar.
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