07 Oct 2018 21:30 (GMT)

U.S. stocks were dragged lower by worries over soaring Treasury yields. Oil edged higher after a turbulent weak troubled by supply concerns. The dollar edged lower as expectations for interest rates remain unchanged. Gold held onto its gains amid mixed data.

OPENING CALL 

Macau is moving to scrap an offshore corporate system in place since just before the 1999 handover to China under which some mainland companies were able to lower their effective tax rates. While the impact would be broad, it will likely "not be too material" for many as Macau’s corporate-tax rate is among the world’s lowest at 12% and the impact is poised to be a handful of percentage points, says Daiwa. But it adds that those at greater risk include Hong Kong-listed Techtronic and Stella as well as "many China textile companies."

EQUITIES 

Technology stocks took another leg down, dragging major U.S. stock indexes lower and putting the tech-heavy Nasdaq Composite on track for its worst week since early spring.

Investors sold many of the year’s best performing stocks, moving into so-called safety stocks such as utilities. The sentiment shift occurred as the stock market’s momentum appeared to stall in the face of suddenly higher long-term government bond yields.

The tech-heavy Nasdaq Composite fell 91.06, or 1.2%, to 7788.45. For the week, the index is off 3%, which would be its worst performance since the week ended March 23. Among big tech stocks, Apple slumped $3.70, or 1.6%, to $224.29 while Netflix fell 12.30, or 3.4%, to 351.35.

The Dow Jones Industrial Average fell 180.43 points, or 0.7%, to 26447.05, while the S&P 500 dropped 16.04 points, or 0.6%, to 2885.57.

"It doesn’t feel like the bottom yet," said Justin Wiggs, managing director in equity trading at Stifel Nicolaus, adding that he expects to see a "sloppy" Monday for stocks, too.

As Treasury yields have risen to multiyear highs, and as solid economic data puts the Federal Reserve on track for more short-term rate increases in coming months, the rising yields on bonds have some investors questioning the value of their stockholdings relative to the perceived safety of their bondholdings.

The result has been two days in a row of big drops in the stock market. And while many analysts and traders said they expect stocks will end the year higher, they said they expect more swings similar to Thursday’s and Friday’s moves in the final three months of the year.

FOREX 

The dollar edged lower, after a mixed U.S. jobs report did little to alter expectations about the Federal Reserve’s plan to raise interest rates.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell 0.1% to 90.24.

U.S. nonfarm payrolls rose a seasonally adjusted 134,000 in September, the smallest gain in a year, the Labor Department said Friday. The unemployment rate fell to 3.7%, the lowest rate in nearly five decades, while wages rose 2.8% from a year earlier.

Federal-funds futures, used by investors to place bets on the direction of interest rates, showed Friday afternoon a 42% chance that the Fed will raise rates at least three more times by its June 2019 policy meeting, compared with a 40% chance Thursday, according to CME Group data.

Expectations of higher rates tend to make the dollar more attractive to yield-seeking investors.

The dollar fell 0.2% against the Japanese yen and less than 0.1% against the euro.

BONDS 

Treasury prices fell after the Labor Department said the economy continued to add jobs and the unemployment rate fell to the lowest level since the Vietnam War.

The yield on the benchmark 10-year yield rose to 3.227%, the highest closing level since May 2011, up from 3.196% Thursday. The 30-year Treasury yield climbed to 3.396%, its highest since July 2014. Yields rise as bond prices fall.

Yields rose after the Labor Department said Friday that unemployment fell in September to 3.7%, the lowest since 1969, and that employers added 134,000 positions to payrolls. While the jobs added last month were fewer than the 180,000 consensus forecast, investors sold attributed the decline in hiring to widespread flooding in North and South Carolina caused by Hurricane Florence.

Investors said that strong data about the service sector Wednesday and the decline in the unemployment rate could be a signal employers are having difficulty in filling positions. The Institute for Supply Management on Wednesday said its nonmanufacturing index rose to 61.6 in September, the highest reading on record going back to 2008. A reading above 50 indicates activity is expanding across service and other industries, while a number below 50 signals contraction.

COMMODITIES 

Oil prices ended a volatile week little changed as investors tried to decide whether Thursday’s price plunge was the start of a downward trend or a brief pause before prices race back to four-year highs.

Light, sweet crude for November delivery ended higher by one cent, or 0.01%, at $74.34 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, was 0.5% lower at $84.16 a barrel.

Oil prices were whipsawed throughout the week, hitting four-year highs both Monday and Wednesday before plunging nearly 3% Thursday, their sharpest one-day decline in two months.

The market uncertainty is being driven by competing narratives. The bullish case for oil prices is that aggressive U.S. sanctions on Iran will sharply curtail the nation’s crude oil exports, putting a squeeze on global oil supplies at a time when the world’s economy is strong and oil demand is high. The more bearish assessment highlights rising U.S. oil inventories, increasing doubts about financial markets and the global economy, and a belief that other oil-producing nations will boost output to cover Iran’s shortfall.

"At this time, I see more potential bearish information evolving [due to] U.S. total stocks building, increase in production from Saudi Arabia and the U.S., with Wall Street in a bit of a flux which could have an impact on the global economy and thus global oil consumption," said Dominick Chirichella, and analyst at Energy Management Institute. "I believe the market is clearly overbought and seemed [earlier this week] to be entering a bit of an upside euphoric state."

Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd., said he thinks oil’s retreat from four-year highs to end the week was mostly just a bout of profit-taking, and said that "it is only a matter of time" before worries about Iran’s output unleash another "upward price march."

Gold prices held on to their gains Friday, as investors digested a mixed U.S. employment number.

Gold for December delivery gained 0.3% at $1,201.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

While the unemployment rate in September fell to 3.7%, its lowest level in decades, the economy created 134,000 jobs-the smallest gain in a year and fewer than the 180,000 jobs analysts were expecting.

Signs of a strong economy and further monetary tightening tend to pressure gold, which struggles to compete with yield-bearing investments when rates rise.

In base metals, copper for December delivery was down 0.3% to $2.7690 a pound.

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