US authorities bonds and shares fall after sizzling jobs report

U.S. government bonds and stocks sold off after employment data showed tepid job conditions, raising traders’ expectations of a rate hike by the Federal Reserve.

Treasury yields rose after a closely watched U.S. jobs report showed employers were on board 528,000 jobs in Julymore than double the 250,000 economists had expected and up sharply from 398,000 in June.

The two-year Treasury yield, which is sensitive to monetary policy expectations, rose more than 0.2 percentage point to 3.27 percent, a sharp jump for a market that usually moves in small steps. Longer-dated bonds were under less pressure.

Meanwhile, the S&P 500 fell 0.4 percent in the afternoon as traders worried about further hawkish gains from Fed. The tech-heavy Nasdaq Composite, whose components are particularly sensitive to interest rates, fell 0.8 percent. Both indexes recovered some losses from the previous day.

“The narrative will be that it came in too hot, the Fed was right and the markets were wrong,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “I think that’s a muted response. . . in the stock and bond market compared to the emotions generated by the headline numbers.

The jobs cap for a week that saw market participants raise expectations for tighter monetary policy in the U.S. following several comments from Fed officials.

San Francisco Fed President Mary Daly said the central bank is “nowhere close” while battling inflation that remains at a 40-year high. Chicago Fed President Charles Evans said he believed a 0.5 percentage point hike at the next policy meeting in September would be appropriate. But he left the door open to a bigger increase of 0.75 percentage points, which he said “could be good too.”

Trading in federal funds futures on Friday showed that markets expect the Fed’s key interest rate to remain unchanged in 2023. will reach 3.64 percent in March, compared to 3.46 percent. before the jobs report is released. The federal funds rate is currently between 2.25 percent and 2.50 percent.

Strong jobs data, which also showed the unemployment rate returning to a half-century low, helped to allay concerns that the world’s biggest economy may be headed for recession. It could also provide impetus for the Fed to continue raising interest rates rapidly after raising borrowing costs by 0.75 percentage points in June and July.

“The surprise increase in non-farm payrolls in July, combined with further declines in the unemployment rate and rising wage pressures again, makes a mockery of claims that the economy is on the brink of recession,” Michael said. Pearce, an economist at Capital Economics, who added that “all the details [of the report] appears to support continued aggressive Fed rate hikes.”

However, the impact of the jobs report on the Treasury market pushed the two-year Treasury yield above the 10-year bond yield. This so-called yield curve inversion is generally seen as an indicator of an impending economic contraction. According to the data, the yield gap was the largest since 2000. August.

The U.S. dollar jumped on Friday after Treasury yields rose 0.8 percent, with the index tracking the currency against a half-dozen peers. The pound and the euro were down about 0.6 percent, while the Japanese yen was down about 1.7 percent.

European shares fell, with the regional Stoxx 600 down 0.8 percent. Asian shares rose, with Hong Kong’s Hang Seng index up 0.1 percent.

Leave a Comment