Wall Street opened with solid gains in the wake of a stronger-than-expected U.S. jobs report, but the buying momentum soon fizzled as long-term bond yields surged to nearly two-year highs in the U.S.
The rise in the U.S. 10-year Treasury note yield of two-tenths of a percentage point to 2.7 per cent has rekindled worries about money getting more expensive to borrow, just as the U.S. jobs picture is brightening. It's also reigniting flows out of income-producing securities such as dividend stocks and real estate investment trusts. The S&P/TSX capped REIT index is down close to 1 per cent this morning.
At just past 1030 a.m. (ET), the S&P 500 was up 3 points, or 0.2 per cent, at 1,619 and the Dow Jones industrial average was up 14 points, or 0.1 per cent, at 15,003.
The resource-heavy Toronto market, meanwhile, opened with modest losses, down 22 points, or 0.2 per cent, at 12,139. A stronger U.S. currency this morning is undermining the performance of commodities, with gold sinking 2.4 per cent and copper down 3.3 per cent.
The firmness in the greenback, coupled with a lacklustre though slightly better-than-expected reading on the Canadian jobs market, sunk the loonie to nearly three-year lows this morning. It was last trading down just over half a cent on the day at 94.51 (U.S.) and hit a low of 94.27.
The U.S. Labor Department reported that nonfarm payrolls increased 195,000 in June, surpassing the 165,000 that economists had expected. U.S. payroll gains in May and April were also revised higher. But the unemployment rate stayed at 7.6 per cent, compared to expectations for it to fall to 7.5 per cent, as more people entered the workforce.
The Fed has closely linked the possible tapering of its $85-billion (U.S.) bond purchases - or quantitative easing - to the nation's jobs recovery. As such, the U.S. jobs report suggests the tapering of the program could commence as early as September. But there were mixed signals to read from the report, as the steady unemployment rate suggests there's still need for aggressive stimulus measures.
On this side of the border, Canada lost 400 net jobs in June from May, as the jobless rate stayed at 7.1 per cent. Economists were looking for a loss of 5,000 jobs given a surge in employment in May.
Easing concerns somewhat about the Fed pulling back on its stimulus measures is a decidedly different approach on the other side of the Atlantic.
Both the Bank of England and the European Central Bank carved out positions in press conferences Thursday that suggest they would try to counteract any tightening of policy or tapering of bond-buying stimulus measures by the U.S. Federal Reserve. The ECB even left the door open to a cut in interest rates going forward. The dovish comments Thursday sent European shares skyrocketing, and some of that positive sentiment is carrying through to Wall Street today.
Not all commodities are losing traction this morning. Crude oil prices are on the rise amid reports that Egypt's army has announced a state of emergency in the provinces of South Sinai and Suez after Islamist gunmen attacted an airport in the Sinai town of El Arish. The Suez canal connects the Mediterranean and the Red seas and is an important shipment route for crude - although there are also reports this morning that the Suez Canal shipping traffic has not been affected by the latest developments.
In New York, the August crude oil futures contract was up 0.5 per cent at $101.75 (U.S.) per barrel.