(Bloomberg) -- Stocks fell and bond yields rose, following a hot labor-market reading and as the Treasury boosted the size of its debt sales just a day after the US was downgraded by Fitch Ratings.
The S&P 500 fell over 1% and was set for its biggest decline since May, while the Nasdaq 100 dropping almost twice as much. Ten-year yields hit the highest since November as the Treasury said it will sell $103 billion of longer-term securities at its quarterly refunding auctions next week. The dollar climbed against most of its developed-market peers.
“With larger auctions confirmed for the coming quarter, the selloff has extended,” said Ben Jeffery a rates strategist at BMO Capital Markets. “The question from here is if investors will be willing to buy the dip ahead of payrolls, or if the selloff has room to extend as term premium for a growing deficit is debated.”
Private payrolls increased by 324,000 last month, according to figures published Wednesday by the ADP Research Institute in collaboration with Stanford Digital Economy Lab. That exceeded all estimates. The monthly jobs report due Friday will provide further insight into the direction the labor market is headed.
‘Skating Behind the Play'
Fitch stripped the US of its top-tier rating, criticizing the ballooning fiscal deficit and an “erosion of governance.” The downgrade serves up an extra dose of uneasiness among investors already concerned about the risks of a recession and whether this year's run-up in stocks is sustainable.
The move by Fitch echoed one made in 2011 by S&P Global Ratings, and gives a whole new meaning to “skating behind the play,” according to Matt Maley, chief market strategist at Miller Tabak. That doesn't make the downgrade wrong, but it sure makes it late, he added.
“With this in mind, we're not worried about the downgrade impact,” Maley noted. “There are some developments to be concerned about, including the recent rise in Treasury yields. The steepening of the yield curve — from an inverted position — is bearish, not bullish for the stock market.”
When the yield curve steepens, it means that yields on long-term bonds rise faster than rates on shorter-term debt. Whenever the yield curve has steepened in a significant way from an inverted position over the past 50 years, it has been followed by a meaningful drop in the stock market before very much time has passed, Maley added.
In other corporate news, Pinterest Inc. dropped after saying said revenue in the current quarter will rise in line with analysts' estimates, disappointing some investors after digital-ad rivals posted surprisingly upbeat results last week. CVS Health Corp. rose after beating estimates for second-quarter profit and sales, a sign of strength as the drugstore chain cuts staff to reduce costs and focuses on broadening its health-care offerings.
Apple Inc. and Amazon.com Inc. are among companies scheduled to report this week, with investors on the lookout for clues on how high interest rates are affecting the economy.
Key events this week:
- China Caixin Services PMI, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
- Bank of England rate decision, Thursday
- US initial jobless claims, productivity, factory orders, ISM Services, Thursday
- Eurozone retail sales, Friday
- US unemployment rate, non-farm payrolls, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.2% as of 10:55 a.m. New York time
- The Nasdaq 100 fell 1.9%
- The Dow Jones Industrial Average fell 0.8%
- The Stoxx Europe 600 fell 1.5%
- The MSCI World index fell 1.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.5% to $1.0932
- The British pound fell 0.7% to $1.2688
- The Japanese yen was little changed at 143.33 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $29,286.3
- Ether fell 0.4% to $1,842.89
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 4.11%
- Germany's 10-year yield declined three basis points to 2.53%
- Britain's 10-year yield declined one basis point to 4.39%
Commodities
- West Texas Intermediate crude fell 2% to $79.71 a barrel
- Gold futures fell 0.3% to $1,972.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Brett Miller, Tassia Sipahutar, John Viljoen and Isabelle Lee.
More stories like this are available on bloomberg.com
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