[New York Market Watch]Investor Sentiment Shrinks Amid Cooling Labor Market—Stocks Down, Bonds Up

(Seoul=Yonhap Infomax) International Economics Department = On the 6th (U.S. Eastern Time), all three major U.S. stock indices closed lower in New York financial markets.

Mounting concerns over an "artificial intelligence (AI) bubble" weighed on the market, while weak unofficial U.S. employment data further dampened investor sentiment.

According to a layoff report released by Challenger, Gray & Christmas (CG&C), U.S. companies announced 153,074 job cuts in October, a surge of 183% from September and 175% from a year earlier.

U.S. Treasury prices rose across the board, driven by signs of a cooling labor market and the prolonged government shutdown, which supported bond prices.

The Bank of England (BOE) also delivered a dovish hold on rates, boosting UK gilts and sending ripples through the U.S. Treasury market.

The U.S. dollar weakened for a second consecutive session.

Amid labor market concerns and rising expectations for policy easing, the dollar index (DXY) fell into the 99 range, in tandem with declining U.S. Treasury yields.

New York oil prices fell for a third straight session, as news that Saudi Arabia lowered its official selling price for crude exports to Asia stoked concerns over weakening demand.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) rose 1.49 points (8.27%) to 19.50.

Equity Markets

All three major U.S. stock indices ended lower in New York.

Persistent worries over an "AI bubble" and news of the largest wave of U.S. corporate layoffs in 22 years triggered broad-based selling.

On the 6th (U.S. Eastern Time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed down 398.70 points (0.84%) at 46,912.30.

The S&P 500 fell 75.97 points (1.12%) to 6,720.32, while the Nasdaq Composite plunged 445.80 points (1.90%) to 23,053.99.

Reports of large-scale layoffs by U.S. companies in October chilled investor sentiment.

According to CG&C, U.S. companies announced 153,074 job cuts in October, up 183% from September and 175% from a year earlier.

This marks the highest October figure since 2003 and the largest monthly layoff total since Q4 2008.

Andrew Challenger, Senior Vice President at CG&C, said, "As in 2003, disruptive technologies are transforming the environment. With job creation at multi-year lows, announcing layoffs in Q4 is particularly concerning."

Recent mass layoff announcements by major big tech firms have had a significant impact. Amazon said at the end of last month it would cut 14,000 jobs, while Microsoft announced plans to lay off 9,000 employees in July. Layoffs have also spread to other sectors, including UPS and Target, raising concerns about a slowdown in consumer spending ahead of the year-end shopping season.

Mike Musio, CEO of FBB Capital Partners, commented, "From a valuation perspective, many major tech stocks were excessively priced. If the government reopens and subsequent economic indicators show consumers are 'not truly dead,' we could see a typical year-end rally."

Controversy also arose after OpenAI hinted at seeking government guarantees for large-scale infrastructure investments, fueling skepticism over the AI bubble.

White House AI and crypto policy czar Davis Sacks wrote on X, "There will be no federal bailout for the AI industry. The U.S. has at least five major frontier model companies, and if one fails, others will fill the gap," directly rebutting comments from OpenAI CFO Sarah Friar.

Friar had said she wanted to create a new financial structure combining private equity, banks, and a federal backstop to build AI infrastructure, which was interpreted as a request for government guarantees and raised concerns about unstable cash flows.

OpenAI CEO Sam Altman also sought to quell the controversy, stating, "We are not asking the federal government for guarantees."

By sector, all industries except energy and healthcare declined. Consumer discretionary stocks plunged 2.5%.

Among trillion-dollar tech giants, all except Alphabet fell. Apple limited its loss to 0.14%.

With AI bubble fears unsettling sentiment, Apple and Alphabet, with robust business models and cash flows, appeared to serve as "safe havens."

In contrast, Nvidia tumbled 3.65%, Tesla dropped 3.50%, and Amazon slid 2.86%.

Nvidia faced downward pressure after Google unveiled its new AI chip "Ironwood," designed for AI inference models, aiming to challenge Nvidia's dominance in the AI chip market.

Following the Ironwood announcement, AMD also plunged 7.27%, with AI and semiconductor stocks broadly lower.

According to CME FedWatch Tool, the probability of the Fed holding rates steady through December fell to 29.1%, down from 38.0% at the previous close.

The CBOE Volatility Index (VIX) rose 1.49 points (8.27%) to 19.50.

Bond Markets

U.S. Treasury prices rose across the board, with the belly of the yield curve showing relative strength.

Private-sector employment data continued to signal a cooling labor market, boosting Treasury prices. With the U.S. federal government shutdown extending to a record 37 days, alternative indicators are gaining influence.

According to Yonhap Infomax's overseas rates screen (screen no. 6532), as of 15:00 (U.S. Eastern Time) on the 6th, the 10-year Treasury yield was down 6.50bp at 4.0920% from the previous day's 15:00 close.

The 2-year yield, sensitive to monetary policy, fell 6.60bp to 3.5660% over the same period.

The 30-year yield, the longest maturity, dropped 4.90bp to 4.6870%.

The 10-year/2-year yield spread widened slightly from 52.50bp to 52.60bp.

Bond yields move inversely to prices.

After a modest decline in European trading, U.S. Treasury yields extended losses early in New York, with the global benchmark 10-year yield falling below 4.10%.

CG&C reported that U.S. companies announced 153,074 job cuts in October, up 183% from September and 175% from a year earlier—the highest October figure since 2003.

Andrew Challenger, Senior Vice President at CG&C, noted, "It's surprising to see so many companies announce layoffs in October, as firms have generally avoided Q4 layoffs over the past decade."

Jim Baird, CIO at Plante Moran Financial Advisors, said, "The labor market has been somewhat sluggish since May. If this signals a short-term trend, it's a warning sign for the market."

Labor market analytics firm Revelio Labs estimated that nonfarm payrolls fell by 9,100 in October, the first decline since May (-15,400) in its model. September's figure was revised down from a 60,000 increase to a 33,000 gain. Revelio Labs said the October decline was led by government (-22,000) and retail (-8,500) sectors.

Revelio Labs added that the October estimate "confirms the Fed made the right decision last week" and that "the Fed may seek to cut rates again in December."

The Chicago Fed's own model estimated the U.S. October unemployment rate at 4.36%, up 0.01 percentage points from the previous month. Rounded to one decimal place, this would be 4.4%, the highest since October 2021 (4.5%).

The BOE's dovish rate hold also boosted UK gilts and impacted the U.S. Treasury market.

The BOE held its policy rate at 4.00% at its monetary policy meeting, with five of nine members voting for a hold and the remaining four for a cut. Governor Andrew Bailey cast the deciding vote for a hold.

Gilt yields fell across the curve, led by a 5.16bp drop in the 2-year.

According to CME FedWatch, as of 15:49 in New York, the federal funds rate futures market priced in a 70.9% chance of a 25bp Fed rate cut in December, up from 62.0% previously.

Foreign Exchange Markets

The U.S. dollar weakened for a second straight session.

News of record U.S. corporate layoff plans heightened labor market concerns, sending the dollar index (DXY), which tracks the greenback against six major currencies, tumbling into the 99 range.

The pound faced temporary downward pressure after the BOE's dovish policy hold.

According to Yonhap Infomax (screen no. 6411), as of 16:00 (U.S. Eastern Time) on the 6th, the dollar-yen rate stood at 153.031 yen, down 1.093 yen (0.709%) from the previous New York close of 154.124 yen.

The euro-dollar rate rose 0.00592 (0.515%) to 1.15476.

The dollar index fell 0.486 points (0.485%) to 99.700.

The dollar reacted to the CG&C layoff report, which showed U.S. companies planned 153,074 job cuts in October, up 183% from the previous month and 175% from a year earlier—the highest October figure in 22 years.

Subsequent employment data also pointed to a cooling labor market.

The Chicago Fed estimated the U.S. October real-time unemployment rate at 4.36%, up 0.01 percentage points from September (4.35%). Rounded, this would be 4.4%, the highest since October 2021 (4.5%).

Revelio Labs estimated, using its RPLS model, that nonfarm payrolls fell by 9,100 in October—the first decline since May (-15,400).

Renewed expectations for Fed rate cuts, combined with falling Treasury yields, pushed the dollar index as low as 99.671 intraday.

Fawad Razaqzada, analyst at Forex.com, said, "This shows it's not just about rate cut expectations. Reality is starting to bite. We're back in risk-off mode."

Donald Rasmiller, analyst at Stratagas, commented, "The U.S. labor market isn't collapsing, but it doesn't look resilient enough to withstand shocks. Some FOMC members are hesitant about a December rate cut, but if the labor market wobbles, they'll have no choice."

The pound-dollar rate rose 0.00859 (0.658%) to 1.31361.

The BOE held its policy rate at 4.00% at its monetary policy committee meeting.

The committee suggested inflation may have peaked, stating, "If disinflation continues to progress, rates are likely to follow a gradual downward path." The word "careful" was removed from previous statements.

The pound-dollar rate fell as low as 1.30597 after the rate decision.

Danske Bank analyst Christine Kunsby Nielsen said, "The pound remains under pressure. The dovish tone persists within the committee, and a near-term rate cut has only been postponed to the next meeting."

The offshore dollar-yuan (CNH) rate fell 0.0084 (0.118%) to 7.1219.

Oil Markets

New York oil prices fell for a third consecutive session, as Saudi Arabia's move to lower its official selling price for crude exports to Asia fueled concerns over weakening demand.

On the 6th (U.S. Eastern Time) at the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude settled down $0.17 (0.29%) at $59.43 per barrel, further distancing itself from the $60 mark and marking the lowest close since October 22.

WTI briefly rebounded to near $60.50 but quickly reversed below $60 and extended losses.

Saudi Arabia set the December export price for its flagship Arab Light crude to Asia at $1 above the Oman/Dubai average, a $1.20 cut from the previous month. This reduced the Arab Light premium over the Oman/Dubai average to its lowest in 11 months.

Capital Economics said in a report, "We expect continued downward pressure on oil prices, supporting our forecast of $60 per barrel by end-2025 and $50 by end-2026, below market consensus."

News of surging U.S. corporate layoffs also weighed on overall risk appetite.

According to CG&C, U.S. companies announced 153,074 job cuts in October, up 183% from September and 175% from a year earlier—the highest October figure since 2003.

syyoon@yna.co.kr

(End)

© Yonhap Infomax. All rights reserved. Unauthorized reproduction or redistribution prohibited. Use of this content for AI training is strictly prohibited.