Wall Street’s reaction to the latest jobs report showed bets that another Federal Reserve interest-rate hike is likely in the bag — but that wouldn’t necessarily happen in June.
(Bloomberg) — Wall Street’s reaction to the latest jobs report showed bets that another Federal Reserve interest-rate hike is likely in the bag — but that wouldn’t necessarily happen in June.
As Treasury yields climbed, swap contracts projected officials will probably wait until next month to tighten again. The possibility of a Fed pause, more signals that the economy is still in good shape and another rally in big tech helped push the stock market higher.
The US labor market sent conflicting signals in May as payrolls surged along with joblessness. Nonfarm payrolls increased 339,000 last month after an upwardly revised 294,000 advance in April. The unemployment rate rose to 3.7%, while wage growth slowed.
“The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency?” said Seema Shah, chief global strategist at Principal Asset Management. “Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July.”
Two-year yields, which are more sensitive to imminent central bank moves, climbed 13 basis points to 4.47%. The S&P 500 rose toward the highest since August and was on track for its third weekly advance.
In corporate news, Amazon.com Inc. has been talking with wireless carriers about offering low-cost or possibly free nationwide mobile phone service to Prime subscribers, according to people familiar with the situation. Broadcom Inc. predicted that sales tied to artificial intelligence will double this year, but the chipmaker remains mired in a broader slowdown.
The buzz around AI has investors pouring a record amount of money into tech stocks, according to Bank of America Corp. A “baby bubble” in AI was the dominant market theme in May, strategist Michael Hartnett said, with tech funds attracting an all-time high of $8.5 billion in the week through May 31, according to the bank citing EPFR Global data.
Flows into global equity funds overall hit $14.8 billion, while $1.1 billion went into bond funds, the data show.
More on Jobs:
- Chris Low, chief economist at FHN Financial:
“If the Fed were really worried about the inflationary implications of this report, they would raise rates. But because they are also worried about tightening credit conditions and are inclined to pause, and because there is not much to lose if they wait to hike in July, they are more likely to emphasize the rise in unemployment and drop in average hourly earnings growth.”
- Jon Maier, chief investment officer at Global X:
“The considerably higher-than-expected payroll figures might spark speculation of the Federal Reserve moving forward with monetary tightening. Nevertheless, the marginal increase in the unemployment rate could potentially provide sufficient reason for the Fed to pause. It really is 50/50 at this point on a June move.”
- George Mateyo, chief investment officer at Key Private Bank:
“Confidence in the market may have taken a mild lickin’ but the labor market keeps on tickin’. For the Fed, their focus on ‘data dependency’ has become increasingly more difficult as the data itself shows conflicting signals. We will still believe that a pivot to rate cuts is not immediately at hand, but a pause remains on the table.”
- Hussain Mehdi, macro and investment strategist at HSBC Asset Management:
“On the surface of it, the labor market is still very hot. Nevertheless, there are some signs of cooling. This evidence – alongside considerations around recent banking sector stress – should give room for a pause at this month’s Fed meeting. A delay to this process implies the risk of higher-for-longer rates, and a deeper downturn.”
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.9% as of 10:31 a.m. New York time
- The Nasdaq 100 rose 0.4%
- The Dow Jones Industrial Average rose 1.3%
- The Stoxx Europe 600 rose 1.3%
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.3% to $1.0728
- The British pound fell 0.2% to $1.2498
- The Japanese yen fell 0.5% to 139.55 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $26,940.25
- Ether rose 0.8% to $1,883.85
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 3.66%
- Germany’s 10-year yield advanced six basis points to 2.31%
- Britain’s 10-year yield advanced five basis points to 4.16%
Commodities
- West Texas Intermediate crude rose 2.3% to $71.73 a barrel
- Gold futures fell 0.8% to $1,979.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo, Isabelle Lee and Peyton Forte.
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