U.S. stock futures edged higher Monday as investors digest the ramifications of what’s likely to be an imminent steep increase in interest rates.
What’s happening
- Futures on the Dow Jones Industrial Average YM00, +0.04% rose 5 points, or 0% to 34723.
- Futures on the S&P 500 ES00, +0.16% gained 6.25 points, or 0.1% to 4546.
- Futures on the Nasdaq 100 NQ00, +0.36% increased 48.5 points, or 0.3% to 14912.
On Friday, the Dow Jones Industrial Average DJIA, +0.40% rose 140 points, or 0.4%, to 34818, the S&P 500 SPX, +0.34% increased 15 points, or 0.34%, to 4546, and the Nasdaq Composite COMP, +0.29% gained 41 points, or 0.29%, to 14262. It came on a day when the Labor Department the U.S. economy added 431,000 new jobs to lower the unemployment rate to 3.6%.
What’s driving markets
Arne Petimezas, senior analyst at AFS. says 50 basis point hikes at the next several meetings, and the start of tightening quantitative tightening, is all but assured after the latest jobs report and commentary from Federal Reserve officials.
The question, ahead of the release of minutes from the last Federal Open Market Committee meeting on Wednesday, is where the economy stands after another strong showing for the jobs market.
Aneta Markowska, U.S. economist at Jefferies, argues the U.S. economy is firmly mid-cycle. “Margins have only begun to contract and are still close to cycle highs. This does not look like a corporate sector that’s about to embark on a cost-cutting campaign. On the contrary, excess demand, pricing power, and low inventories create a strong incentive to invest and hire,” she said in a note to clients.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, argues the economy is a late-cycle stage. “A period where growth is good (but slowing), inflation is elevated and policy is tightening isn’t some ‘macro unicorn’ but rather a common pattern that tends to appear late in an economic expansion,” he said. “This pushes up inflation, which pushes up policy rates, which flattens (and then inverts) the yield curve. Weaker parts of the market suffer, and breadth narrows as the tide of liquidity starts to roll out.”
The 2-year yield TMUBMUSD02Y, 2.456% on Monday again was higher than the 10-year TMUBMUSD10Y, 2.404% yield.
Signs of the pendulum swinging back in the favor of workers came as Amazon.com AMZN, +0.35% workers in Staten Island, New York voted to unionize, and Starbucks SBUX, +0.57% ended its stock buyback program to invest in “people and stores.” Workers at 140 Starbucks stores have started to unionize.
The news from Ukraine was grim as officials there said the bodies of 410 civilians were found in towns around the capital Kyiv, prompting discussion of further sanctions. “While new sanctions themselves probably won’t matter much in the greater scheme of things, what does matter is that we are even further away in removing sanctions on Russia (and with all the consequences on inflation and terms of trade),” said Petimezas.