# Stocks sag as hawkish Fed cools China rally; awaits US jobs data
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-05
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Global Stocks Rally Halted by US Jobs Data but China
Meta Description: U.S. stocks fall after job data, outweighing China's reopening plans. Expectations for Fed meeting. Impact on bond, stock markets mentioned.
URL: https://financedigest.com/stocks-sag-as-hawkish-fed-cools-china-rally-awaits-us-jobs-datahtml

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By Koh Gui Qing

NEW YORK (Reuters) -U.S. stocks sank on Thursday and brought to a halt a [rally](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") in global stocks, as upbeat American jobs data after the Federal Reserve’s firm message that it will not be cutting interest rates any time soon offset China’s latest reopening plans.

News that China’s mainland border with [Hong Kong will be reopened after three years](https://www.financedigest.com/hong-kong-finance-official-to-make-first-visit-to-britain-in-three-years.html "Hong Kong finance official to make first visit to Britain in three years") had sent Asian-Pacific shares outside Japan to a four-month high overnight, but with both the dollar and bond market borrowing costs creeping up, Europe couldn’t keep up.

The MSCI All-World index lost 0.8%. On [Wall Street](https://www.financedigest.com/wall-street-drops-treasury-yields-gyrate-on-fed-chairman-powells-remarks.html "Wall Street drops, Treasury yields gyrate on Fed Chairman Powell’s remarks"), the S&P 500 dropped 1.2%, the Dow Jones Industrial Average lost 1%, and the Nasdaq Composite dropped 1.5%.

“U.S. stock indexes appear neither cheap nor expensive enough to stir restless spirits,” said Stephen Innes, a managing partner at SPI [Asset](https://www.financedigest.com/britains-post-brexit-asset-management-revamp-eyes-liquidity-tokenisation.html "Britain’s post-Brexit asset management revamp eyes liquidity, tokenisation") Management.

Outside of China’s exuberance, [investors are likely to remain relatively defensive and probably underweight bonds and stocks](https://www.financedigest.com/influx-of-one-time-investors-swapping-stocks-for-bricks-and-mortar-reports-agency.html "Influx of ‘one-time’ investors swapping stocks for bricks and mortar reports agency") and reasonably neutral on commodities,” Innes said, at least until the Fed’s Jan. 31-Feb. 1 meeting is over.

The pan-European STOXX index ended down 0.2%, after gaining more than 3% in its first three sessions of 2023. London’s FTSE 100 managed a respectable 0.6% [rise as better-than-expected numbers from retail giant Next lifted the entire European sector](https://www.financedigest.com/sterling-rises-as-receding-bank-sector-worries-lift-sentiment.html "Sterling rises as receding bank sector worries lift sentiment"), but it barely made up for a groggy Frankfurt and Paris. \[.EU\]\[.N\]

Following the release on Wednesday of the [minutes from the Fed’s](https://www.financedigest.com/dollar-jumps-euro-dips-before-fed-minutes.html "Dollar jumps, euro dips before Fed minutes") Dec. 13-14 meeting that showed the U.S. [central bank](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks") strike a hawkish note as it stayed focused on reducing inflation, analysts said Friday’s U.S. jobs report for December will be [closely watched by investors](https://www.financedigest.com/optable-closes-20-million-series-a-financing-broadens-investor-syndicate-in-new-round.html "Optable Closes  Million Series A Financing, Broadens Investor Syndicate in New Round"). Signs of a still-tight labour market could fuel bets that more [rate hikes](https://www.financedigest.com/dollar-firms-after-u-s-labor-data-suggests-more-rate-hikes.html "Dollar firms after U.S. labor data suggests more rate hikes") are in the offing.

“A strong print tomorrow and I think you are going to get a fairly rapid repricing for a 50-bps (basis-point) hike at the next (Fed) meeting,” said Derek Halpenny, head of research for global markets EMEA at MUFG.

Investors were already digesting their pre-payrolls appetiser, the ADP National Employment Report, which showed the [private sector](https://www.financedigest.com/dollar-slides-on-contraction-in-private-sector-activity.html "Dollar slides on contraction in private sector activity") added more jobs in December than a month ago. It came a [day after a moderate fall](https://www.financedigest.com/stocks-fall-treasury-yields-rise-upon-final-2022-trading-day.html "Stocks fall, Treasury yields rise upon final 2022 trading day") in U.S. job openings too.

China, meanwhile, has abruptly dropped ultra-strict curbs on travel and activity, fanning [hopes that once the COVID-19 infection waves pass its giant economic motors can start firing again and offset the slowdowns](https://www.financedigest.com/hopes-of-slowdown-in-rate-hikes-bolster-shares-ahead-of-u-s-gdp.html "Hopes of slowdown in rate hikes bolster shares ahead of U.S. GDP") in other parts of the world.

Thursday’s biggest Asian gains included E-commerce and consumer stocks in [Hong Kong](https://www.financedigest.com/screening-of-winnie-the-pooh-horror-film-cancelled-in-hong-kong.html "Screening of ‘Winnie the Pooh’ horror film cancelled in Hong Kong") thanks to the China mainland border news, which drove the Hang Seng to a six-month high.

The yuan also rose about 0.11% to 6.8800, a four-and-a-half-month high, and also supported other currencies such as the Thai baht which, as Thailand is now [expected to see a mass return](https://www.financedigest.com/lufthansa-expects-further-significant-improvement-after-return-to-profit.html "Lufthansa expects further ‘significant improvement’ after return to profit") of Chinese holidaymakers, has surged nearly 14% in less than three months.

[“China reopening](https://www.financedigest.com/asian-shares-muted-as-investors-fret-over-china-reopening.html "Asian shares muted as investors fret over China reopening") has a big impact … worldwide,” said Joanne Goh, an [investment strategist at DBS Bank](https://www.financedigest.com/credit-agricole-launches-china-ma-and-investment-banking-business.html "Credit Agricole launches China M&A and investment banking business") in Singapore, since it not only spurs tourism and consumption but can ease some of the supply-chain crunches seen during 2022.

“There will be hiccups on the way,” Goh said, during an outlook presentation to reporters. “We give it six months adjusting to the process. But we don’t think it’s reversible.”

[RATES WARNING](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout")

China’s central bank also said overnight it would step up financing support to spur domestic consumption and [key investment](https://www.financedigest.com/battling-uncertainty-is-the-key-to-property-investment-success.html "Battling uncertainty is the key to property investment success") projects and support a stable real estate market.

It has eased an unofficial ban on [Australian coal imports in recent days as well, and the Australian dollar](https://www.financedigest.com/asian-stocks-make-7-month-highs-australian-dollar-gains-on-hot-inflation.html "Asian stocks make 7-month highs, Australian dollar gains on hot inflation") made a three-week high overnight just below $0.69. It last bought $0.6749.

Oil rebounded after posting the biggest two-day loss for the start of a year in three decades. \[O/R\]

Brent crude futures settled 1.1% higher at $78.69 a barrel. U.S. [West Texas Intermediate crude ended](https://www.financedigest.com/londons-west-end-regains-pre-pandemic-buzz-boosting-sales.html "London’s West End regains pre-pandemic buzz, boosting sales") up 1.2% at $73.67 a barrel.\[O/R\]

This morning’s rebound is due to the shutdown of Line 3 of the Colonial [pipeline,” said Tamas Varga of oil](https://www.financedigest.com/keystone-oil-pipeline-restart-timetable-unclear-traders-worry-about-supply.html "Keystone oil pipeline restart timetable unclear; traders worry about supply") broker PVM. There is no doubt that the prevailing trend is down,” though he added: “It is a [bear market.”](https://www.financedigest.com/deutsche-bank-equity-bear-market-rally-will-stretch-into-2023-dollar-weaker.html "Deutsche Bank: Equity bear market rally will stretch into 2023, dollar weaker")

Benchmark 10-year [Treasury yields](https://www.financedigest.com/wall-st-flutters-treasury-yields-ease-as-powell-resumes-testimony.html "Wall St flutters, Treasury yields ease as Powell resumes testimony") – which move inversely to price – were higher at 3.7106% but still down nearly 10 basis points (bps) on the week. \[US/\]

Germany’s 10-year government [bond yield](https://www.financedigest.com/stocks-up-bond-yields-fall-as-markets-mull-a-fed-policy-pause.html "Stocks up, bond yields fall as markets mull a Fed policy pause") was last up at 2.295%. It too though has fallen nearly 25 bps this [week after closing out 2022 at its highest level since](https://www.financedigest.com/the-nasdaq-100-on-track-to-have-its-best-week-since-march-2010.html "The Nasdaq 100 On Track to Have its Best Week Since March 2010") 2011\. \[GVD/EUR\]

Preliminary [inflation data](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") from Germany, France and Spain all showed this week that consumer prices rose at a slower pace in December than November, following an easing in energy price rises.

In currency markets, the [dollar index rose 0.90% to 105.15 as investors navigate between the Fed’s](https://www.financedigest.com/dollar-pauses-for-breath-as-fed-swings-into-focus.html "Dollar pauses for breath as Fed swings into focus") hawkish tone and the support for riskier currencies driven by China’s reopening.

It was pinning down the yen again at 133.300 per dollar, cutting the wagers that Japan’s ultra-easy monetary policy will be [finally tightened this year](https://www.financedigest.com/10-year-david-goliath-crusade-finally-sees-justice-for-off-plan-spanish-property-buyers.html "10 year ‘David & Goliath’ crusade finally sees justice for off-plan Spanish property buyers"). A stronger [dollar pushed the euro](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") down 0.8% to $1.05175. \[USD/\]

(Additional reporting by Tom Westbrook in Singapore; Editing by William Maclean, David Evans, Alex Richardson, Paul Simao and Marguerita Choy)


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