Jobs, rising bond yields, weakness in stocks, Elon Musk

© Reuters

By Geoffrey Smith and Peter Nurse — The bond market continues to issue warning signals about inflation, as the 10-year Treasury yield hit its highest level since late 2018 overnight. inflation weakens the trend of job growth, or if it brings more people back into the labor market. Elon Musk takes a big step towards completing his acquisition of Twitter and oil prices are rising again as the EU tries to lift a stumbling block to its embargo on Russian oil. Here’s what you need to know in the financial markets this Friday, May 6.

1. Bonds continue to send warning signals

The bond market continues to sound alarm bells after another day of high volatility that left markets torn between the twin fears of inflation and recession.

The US yield, which can be seen as a proxy for short-term rates over the next decade, hit a new 3½-year high at 3.10% overnight, possibly reflecting the take awareness of the magnitude of the change in liquidity conditions later in the year as the Fed’s balance sheet shrinkage accelerates.

However, the Treasury’s yield was less volatile. However, the Treasury’s yield has been less volatile and should end the week roughly where it started. This suggests that market expectations for Fed rates in the next couple of years haven’t changed much, despite all the volatility seen over the past two days.

The general impression is one of great uncertainty exacerbated by the scarcity of liquidity, against a backdrop of growing fears of “stagflation”.

This fear surfaced on Thursday in response to the Bank of England’s growth rate downgrade, and the risk that the Eurozone will follow suit is growing day by day. German and industrial bonds both fell sharply in March, while Banque de France Governor Francois Villeroy de Galhau warned that a weak could further worsen the inflation situation.

2. Payroll growth should slow down a bit

The US economy is expected to add 391,000 jobs in the month to mid-April, down slightly from 431,000 the previous month.

The official labor market report, due at 2:30 p.m., is also expected to show employment is down to 3.5% of the labor force. However, perhaps the most important numbers in the report will be turnout and .

Record job vacancies and a shortage of workers are allowing wages to rise at rates well above what is consistent with low inflation. Thus, any further acceleration in wage growth is likely to rekindle the fears of higher interest rates that have been rocking the markets this week. On the other hand, any sign of the return of the inactive to the labor market will allay these fears. The has risen by almost 1% over the past five months as pandemic savings have been drawn down, particularly by lower-income groups.

The New York Federal Reserve Chairman will speak at 3:15 p.m., which might add some color and analysis to the report.

3. US stocks set to extend their opening losses

U.S. stock markets are set to extend their losses at the open, after suffering their worst day since the first wave of the pandemic on Thursday.

By 1:00 p.m., were down 40 points, or 0.1%, while were down 0.3% and down 0.6%.

Among the stocks likely to receive particular attention are electric vehicle group Lucid (NASDAQ:), which posted a smaller-than-expected loss after the close on Thursday, as well as Live Nation Entertainment (NYSE:) , which has strong profits thanks to the rebound in concerts and sports. EOG Resources (NYSE:) has also joined the ranks of oil and gas companies profiting from rising crude prices.

Under Armor (NYSE:) also released better than expected this morning, while insurance giant Cigna (NYSE:) ahead of the open.

4. Musk finds backers for Twitter acquisition

Elon Musk’s (NYSE:) Twitter bid looks set to go ahead after the Tesla (NASDAQ:) CEO announced he found $7.1 billion in additional equity from a series of wealthy investors. Some, like Prince Al Waleed bin Talal of Saudi Arabia, are existing shareholders who will keep their shares, while others, like Oracle (NYSE:) CEO Larry Ellison and bitcoin exchange Binance, will buy for the first time.

Venture capital firms Sequoia and Andreessen Horowitz also need to inject cash, as do Fidelity and Brookfield Asset Management.

The net effect is to halve the amount Musk has to borrow against his Tesla stock, greatly reducing the risk of forced liquidations. Tesla stock fell in premarket despite the news, while Twitter stock held onto Thursday’s gains to trade at $50.09 at 1 p.m., less than 10% below the offer price of Musk.

Separate reports have suggested that Musk has agreed to temporarily take over as CEO if his offer is accepted.

5. Oil strengthens as EU moves to lift embargo hurdle

Oil prices remained well oriented, the European Union trying to remove the main stumbling block of its planned embargo on Russian oil and refined products.

According to the Bloomberg agency, officials said the EU will give Hungary, Slovakia and the Czech Republic up to two more years to comply with the ban, due to their disproportionate dependence on -vis oil pipelines from the Soviet era.

The sanctions package can only come into force with unanimous support. According to various reports, Hungarian Prime Minister Viktor Orban is pushing for a five-year exemption.

By 1:05 p.m., oil futures were up 2.3% at $110.69 a barrel, while oil was up 2.2% at $113.39.

Leave a Comment