Wall Street is headed for a lower start on Wednesday, buoyed by strong private payrolls data that has raised concerns about smaller-than-expected interest rate cuts by the Federal Reserve in the coming months.
The day before, the Nasdaq and Dow Jones indices closed at their lowest points in two weeks, as Treasury yields rose following encouraging data on manufacturing activity and factory orders. These positive indicators cast doubt on the Federal Reserve’s previous projection of three rate cuts by 2024.
March private payrolls rose by 184,000 jobs, beating economists’ expectations of 148,000, according to the ADP employment report. While this is generally seen as positive news for the economy, there are concerns that it could lead the Federal Reserve to reconsider its plans to cut interest rates.
The benchmark 10-year US Treasury yield saw a slight rise, rising to 4.3972%, trading near its high for the year.
Market traders are now assessing the probability of a 25 basis point rate cut in June, with the probability falling to 57% from 64% last week, according to CMEGroup’s FedWatch tool.
Despite recent strong economic data, including positive comments from several US central bank officials such as Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Bank of San Francisco President Mary Daly, who expressed support for three rate cuts this year, investors remain cautious.
Attention now turns to the Labor Department’s next jobs report, expected to be released later in the week, which is expected to reveal an increase of 200,000 jobs in March.
Meanwhile, concerns are growing about inflationary pressures as Brent crude prices approach $90 a barrel.
In pre-market trading, Intel witnessed a 5.1% drop after disclosing $7 billion in operating losses for its foundry business in 2023. Tesla also saw a 1.2% drop after missing first-quarter delivery estimates. By contrast, Paramount Global saw a 1.9% rise in its share price amid reports of possible talks with David Ellison, founder of Skydance Media, to reach a deal.
Also read: Tesla faces a slide in its shares after the shortfall in deliveries in the first quarter