ADP Employment Report – U.S. private sector added a net 200,000 jobs this month, matching expectations, showing resilience for employment.
The labor market remains healthy. But selling is muted in the bond market after Yellen said Wednesday the central bank would be cautious in tightening policy given the uncertain global growth outlook.
That means despite solid jobs growth, the Fed may wait longer than what might generally be called for in such an environment before raising rates further. April seems to be off the table and the odds for a move in June remain low for now.
The 10-year yield is at 1.826%, versus Tuesday’s 1-month low of 1.814%
U.S. stocks and government bonds rose while the dollar fell Tuesday after the Federal Reserve chairwoman said global economic uncertainty warranted a cautious approach to raising interest rates.
(Yellen: global and financial uncertainties posed risks to the U.S. economy and justified a slower path for rate increases)
Janet Yellens remarks at the Economic Club of New York came after other Fed officials gave upbeat assessments of the U.S. economy in recent days and left the door open to a rate increase as soon as April
The Dow Jones Industrial Average and the S&P 500 closed at their highest levels of the year, and the S&P 500 returned to positive territory for 2016, up 0.5%.
The Dow rose 97.72 points, or 0.6%, to 17633.11, after being down as much as 101 points early in the session. The S&P 500 climbed 17.96, or 0.9%, to 2055.01 and the Nasdaq Composite rose 79.84, or 1.7%, to 4846.62.
Ms. Yellen effectively eliminated April at this point as a likely meeting for a rate increase.
Federal-funds futures, used by investors and traders to bet on central-bank policy, showed a 5% likelihood of a rate increase from the Fed at its April 2016 policy meeting, according to data from CME Group. The odds were 12% Monday. The probability of a rate increase at the Feds June meeting was 28%, down from 38% Monday.
U.S. government bonds yields traded to their lowest level in a month. The yield on the 10-year Treasury note fell to 1.814%, from 1.870% Monday.
The yield on the two-year note, which is highly sensitive to expected changes in interest rates, also reached its lowest in a month. The yield fell to 0.796%, from 0.869% Monday.
The WSJ Dollar Index, which measures the buck against a basket of 16 currencies, dropped 0.9%.
Gold for March delivery rose 1.3% to $1,235.60 an ounce – responding to lower yield curve expectations. Gold is seen as a hedge against inflation – also lower USD drives demand for gold.
Bank shares impacted by lower yields, Higher interest rates tend to increase the difference between what banks charge on loans and pay on deposits, which should boost earnings.
The KBW Nasdaq Bank index of large U.S. commercial lenders declined 0.8%. Bank of America declined 20 cents, or 1.5%, to $13.42. Wells Fargo fell 65 cents, or 1.3%, to 48.05, and J.P. Morgan Chase fell 37 cents, or 0.6%, to 59.03.
The Stoxx Europe 600 edged up 0.5%, snapping a four-day streak of declines.
The Shanghai Composite Index fell 1.3%, while Japans Nikkei Stock Average sank 0.2%.
Investors globally were also looking ahead to Friday U.S. job report as they assess the strength of the economy.
We see a broad-based pickup not only in inflation but also wage inflation, said Bo Christensen, chief analyst at Danske Invest. If the data remains on track, he expects two to three interest-rate increases this year.
U.S. crude oil fell 2.8% to $38.28 a barrel on concerns the global supplies of crude remain too high to keep prices near $40 a barrel.