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US government bonds and stocks drop after hot jobs report

U.S. government bonds and stocks sold off after employment data showed red-hot labor conditions, leading traders to raise their expectations for a rate hike by the Federal Reserve.

Treasury yields surged higher after the closely watched US jobs report showed employers added 528,000 jobs in JulyMore than double the 250,000 expected by economists and a sharp increase from 398,000 in June.

The two-year Treasury yield, sensitive to monetary policy expectations, jumped by more than 0.2 percentage points to 3.27 percent – a sharp jump for a market that usually moves in small increments. Longer bonds came under milder pressure.

Meanwhile, the S&P 500 was down 0.4% in the afternoon, as traders worried about the prospect of more equity interest rate hikes. fed. The tech-heavy Nasdaq Composite, whose components are particularly sensitive to interest rates, fell 0.8%. Both indexes have clawed back some losses since earlier in the day.

“The narrative is going to be that it went in too hot, the Fed was right, and the markets were wrong,” said Jim Paulsen, chief investment strategist at the Luthold Group. “I think it’s a muted reaction … in the stock and bond market relative to the emotion created by the headline numbers.”

The jobs data limit for the week, where market participants raised expectations for tighter monetary policy in the US after comments from several senior Fed officials.

San Francisco Fed President Mary Daly said the central bank was “Not close“Finished with its fight to cool inflation, which continues to run at a 40-year high. Chicago Fed President Charles Evans said he thinks a 0.5 percentage point hike at the next policy meeting in September would be appropriate. However, he left the door open to a hike.” A greater of 0.75 percentage points, which he says “could also be fine”.

Federal funds futures trading on Friday showed markets expect the Fed’s main interest rate to peak at 3.64% in March 2023, up from 3.46% before the jobs report. The federal funds rate is currently in a range of 2.25-2.50 percent.

The strong jobs data, which also showed the unemployment rate returning to a half-century low, helped allay some concerns that the world’s largest economy could be headed for a recession. It could also let the Fed continue its rapid rate hikes, after raising borrowing costs by 0.75 percentage points in June. July.

“The unexpected acceleration in wage growth outside the economy in July, together with the additional drop in the unemployment rate and the renewed increase in wage pressure, make a mockery of the claims that the economy is on the brink of recession,” said Michael Pierce, an economist at Capital Economics, who added that “all the details [of the report] It seems that he supports the continuation of aggressive interest rate hikes by the Fed.”

However, the impact of the jobs report on the Treasury market exacerbated the extent to which 2-year bond yields exceed 10-year yields. A so-called yield curve inversion is generally considered an indicator of an impending economic contraction. Following the data, the yield spread was the most inverted since August 2000.

The US dollar trailed Treasury yields on Friday, with an index that tracks the currency against half a dozen peers up 0.8%. The pound and the euro each fell by about 0.6%, while the Japanese yen fell by about 1.7%.

In stocks, stocks fell in Europe, with the regional Stoxx 600 closing down 0.8%. Asian shares posted gains, with Hong Kong’s Hang Seng index up 0.1%.

US government bonds and stocks drop after hot jobs report Source link US government bonds and stocks drop after hot jobs report

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