Concern the U.S. is vulnerable to global headwinds has dominated markets, fueling a retreat in the dollar and stocks.

(Bloomberg) — U.S. stocks fell with Treasuries, while the dollar advanced after a drop in unemployment and signs of wage growth in America bolstered the case for the Federal Reserve to pursue additional interest-rate increases. Crude fell 1.5 percent.

The Standard & Poor’s 500 Index extended its weekly decline as the employment report indicated hiring declined more than forecast last month. Yields on 10-year Treasury notes rose three basis points and the dollar climbed versus most major peers as hourly earnings increased more than estimated and the unemployment rate slid to 4.9 percent. The Stoxx Europe 600 Index was little changed, while oil slipped toward $31 a barrel.

Concern the U.S. is vulnerable to global headwinds has dominated markets this week, fueling a retreat in the dollar and stocks, and pushing futures traders to price in no Fed rate hikes this year. The Labor Department report unsettled that view, with the job market on solid footing and companies confident about the outlook for domestic sales. A further tightening of labor conditions that sparks wage gains would help assure Fed policy makers that inflation will reach its goal.

“We can’t get a good sense of whether this is good news or bad news because it’s a little off expectations but it’s particularly exciting to see the unemployment rate at 4.9 percent,” Erik Davidson, chief investment officer for Wells Fargo & Co.’s private bank, said by phone. “This isn’t great for bears or bulls but one thing we can definitely say is that it’s good to be a consumer. All the data here is good for U.S. workers.”

Stocks

The S&P 500 fell 0.6 percent at 9:36 a.m. in New York, and the Stoxx Europe 600 Index added 0.1 percent. Both equity gauges are heading for their first declines in three weeks, while miners worldwide have rallied the most among industry groups.

“After all the dust settles, people are going to continue to watch oil and the financial stocks,” said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. “People are definitely looking at the macro issues right now more than they’re looking at earnings.”

The Topix index in Japan fell 1.4 percent with the local currency poised for its best weekly performance since July 2009. The Nikkei 225 Stock Average has fallen for four of the past five weeks as losses among exporters wiped out gains incurred after the Bank of Japan unexpectedly bolstered monetary stimulus on Jan. 29. Demand for government debt sent Japan’s 10-year bond yields to a record low.

“The Bank of Japan has done what they should, but what they could do had its limits,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. “Until now the view on the U.S. economy was that it’s recovering, but the pace isn’t as fast as hoped. Now there’s some concern in the market that it may actually be contracting.”

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 global peers, rose 0.4 percent, paring its slid this week to has lost 2.1 percent. Against the euro, the greenback weakened to $1.1196, poised for its steepest weekly slide since October 2011. The dollar was at 116.88 yen, down 3.5 percent since Jan. 29.

Traders have been pulling away from a strong-dollar trade that’s been a winner as the Fed prepared and then started to raise interest rates at a time when peers including the BOJ and European Central Bank were expanding stimulus. The tide has turned, with futures showing the odds of a quarter-point rise in the Fed’s benchmark target rate by January 2017 at less than 50 percent, from 93 percent at the end of 2015.

Bonds

The Treasury 10-year note yield was at 1.88 percent, after dropping to a one-year low of 1.79 percent this week. The rate has dropped almost 40 basis points in 2016, more than wiping out the 10 basis-point climb the previous year.

German two-year yields fell to minus 0.5 percent on Wednesday, while Japan’s 10-year rate touched 0.02 percent on Friday — both record lows. The yield on a Bank of America Corp. index of sovereign bonds has fallen to 1.33 percent, the lowest level based on data that go back to the end of 2005.

Commodities

Oil headed for its first weekly drop in three as a global glut proves a hurdle for any sustained price rally. Futures were at $31.46 a barrel in New York and are down more than 4 percent for the week. 

U.S. supplies rose above 500 million barrels through Jan. 29, the highest level since 1930 in monthly government data compiled by the Energy Information Administration.

Metals are heading for weekly gains made on a weaker dollar. Lead for delivery in three months is set to end an eight-session run of gains on the London Metal Exchange, the longest in more than a year. Gold added 0.3 percent. Metals producers will meet in Cape Town for Africa’s biggest mining conference starting Saturday.

Emerging Markets

Developing-market stocks rose for a second day, erasing their weekly losses. The MSCI Emerging Markets Index advanced 0.3 percent on Friday. The gauge surged yesterday on investor bets that the Fed will go slow on further interest-rate increases, boosting appetite for assets denominated in higher- yielding currencies.

A gauge of 20 emerging-market currencies tracked by Bloomberg trimmed its third weekly advance, the longest stretch since May.

Hong Kong’s Hang Seng Index rose 0.5 percent, while the Hang Seng China Enterprises Index gained 1 percent. The Shanghai Composite Index dropped 0.6 percent. Mainland Chinese markets are closed with Taiwan’s next week for the Lunar New Year break, while Hong Kong is shut for the first three days, resuming Thursday.

–With assistance from Neil Denslow, David Goodman, Srinivasan Sivabalan, Eddie van der Walt, Emma O’Brien, Sofia Horta e Costa and Lananh Nguyen.

 

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