Treasury yields rose and tech stocks dipped ahead of Friday’s jobs report as traders try to gauge how soon and deeply the Federal Reserve can start cutting interest rates. 

The Nasdaq 100 slipped 0.5 per cent, logging a five-day losing streak — the longest such run since December 2022 — as investors booked profits on last year’s winning tech stocks. Apple Inc. tumbled after its second downgrade this week as Piper Sandler flagged concern about iPhone inventory levels. The S&P 500 ended the session 0.3 per cent lower after flipping between gains and losses.

Ten-year Treasuries flagged with yields hitting 4 per cent after data showed U.S. companies ramped up hiring in December and jobless claims came in below estimates. The benchmark rate for everything from mortgages to loans has added about 12 basis points since the start of the year. Swaps traders trimmed their bets on Fed easing after the data. 

“There was nothing within the data that would suggest any urgency from policymakers to begin normalizing rates lower during the first quarter,” said Ian Lyngen a strategist at BMO Capital Markets.

Traders will next turn to the monthly U.S. jobs report on Friday as well as European inflation data to gauge whether central banks have room to start lowering interest rates.

Wagers on a March rate cut in the U.S. have been dimming with the labor market still on sure footing and after the minutes on Wednesday from the Fed’s December meeting suggested rates could remain at restrictive levels “for some time.”

Nonfarm payrolls likely increased by 175,000 in December while the unemployment rate is seen edging up slightly to 3.8 per cent, according to economists polled by Bloomberg.

“As it stands there’s been little to indicate that last month was when the labor market took a cyclical turn weaker,” BMO’s Ben Jeffery wrote. “We’re biased for Friday’s data to give the Fed cover to hold rates high for an extended period of time as the FOMC Minutes suggested.”

Swaps trader are now factoring in around a 65 per cent chance for a quarter point rate cut by the Fed’s second meeting this year, they had seen a March rate cut as a surer bet last week.

“If tomorrow’s numbers show the same kind of strength and the economy keeps rolling along, it’s fair to wonder why the Fed would be in a rush to cut rates,” said Chris Larkin at E*Trade from Morgan Stanley.

Veronica Clark, an economist at Citigroup, expects the report to dampen bets on near-term cuts for January and March. 

“Even with a recent loosening of financial conditions, risks for monthly job growth still skew more to the downside than upside, and markets are likely to be more reactive to weaker data,” she wrote. 

Bloomberg Economics View:

December’s nonfarm payroll report likely will show strength only in concentrated pockets of the labor market, with the details revealing weak underlying fundamentals. We also expect the unemployment rate to edge up. With hiring slowing quickly across most sectors, wage growth will moderate in December.

— Economists led by Anna Wong

West Texas Intermediate oil tumbled after stockpiles in Cushing rose to the highest level since July. Oil prices have been whipsawed this week amid supply disruptions in Libya and the Red Sea, while Iran said attacks that killed almost 100 people in the country were carried out to punish its stance against Israel.

In currency markets, the yen weakened on speculation that it’ll be harder for the Bank of Japan to abolish negative interest rates after a powerful earthquake hit the country on New Year’s Day. Morgan Stanley MUFG Securities Co. changed its call for the BOJ rate decision this month and now sees it leaving current policy in place.

In corporate news, GOP presidential candidate Vivek Ramaswamy sold about US$33 million worth of shares in his biotech company Roivant Sciences Ltd. Stock of Endeavour Mining Plc fell in Toronto trading after the firm fired its chief executive officer for serious misconduct.

McDonald’s Corp. shares weakened after the fast-food chain said it was being hurt by boycotts in the Middle East. 

Key events this week:

• Eurozone CPI, PPI, Friday
• U.S. nonfarm payrolls/unemployment, factory orders, ISM services index, Friday
• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.5 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2 per cent to $1.0949
• The British pound rose 0.2 per cent to $1.2685
• The Japanese yen fell 0.9 per cent to 144.61 per dollar

Cryptocurrencies

• Bitcoin rose 2.9 per cent to $44,200.17
• Ether rose 2.2 per cent to $2,276.38

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 3.99 per cent
• Germany’s 10-year yield advanced 10 basis points to 2.12 per cent
• Britain’s 10-year yield advanced nine basis points to 3.73 per cent

Commodities

• West Texas Intermediate crude fell 0.5 per cent to $72.35 a barrel
• Spot gold rose 0.1 per cent to $2,043.69 an ounce