Treasury yields climbed as a solid jobs report bolstered bets the Federal Reserve will have room for one more interest-rate hike by July. Stocks rose on speculation the economy is strong despite aggressive policy tightening.
(Bloomberg) — Treasury yields climbed as a solid jobs report bolstered bets the Federal Reserve will have room for one more interest-rate hike by July. Stocks rose on speculation the economy is strong despite aggressive policy tightening.
The amount of tightening priced in by swaps linked to the next two Fed meetings edged up, with traders projecting officials will most likely wait until next month to tighten again. Two-year US rates advanced six basis points to 4.4%, paring an increase of as much as 11 basis points. Gains in the S&P 500 drove the benchmark measure toward its third straight week of gains — the longest winning streak since March.
Nonfarm payrolls increased 339,000 last month after an upwardly revised 294,000 advance in April, a Bureau of Labor Statistics report showed Friday. The unemployment rate rose to 3.7%, while wage growth slowed.
Reaction to Jobs:
- Win Thin, global head of currency strategy at BBH:
“Headline is spectacular, but the devil is in the details. Unemployment unexpectedly rose so something is going on in the household survey. All in all, however, I think the Fed will regret talking about a skip.”
- Neil Birrell, chief investment officer at Premier Miton Investors:
“Expectations of a rate rise have been flip-flopping this month, and the employment data has now shown a surprisingly large increase in payrolls. This may well flip markets back to pencilling in a hike. This will undoubtedly give plenty of support to the more hawkish members of the Fed.”
- Seema Shah, chief global strategist at Principal Asset Management:
“Another rate hike is in the bag. The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency in the FOMC? Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July. But overall, this is not a labor market that is slowing – and if it’s not slowing, then inflation isn’t coming down to 2%.”
- 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.”
- Chris Low, chief economist at FHN Financial:
“In other words, 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.”
- 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.”
The Senate passed legislation to suspend the US debt ceiling and impose restraints on government spending through the 2024 election, ending a drama that threatened a global financial crisis. The measure now goes to President Joe Biden, who forged the deal with House Speaker Kevin McCarthy and plans to sign it just days ahead of a looming US default.
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. Lululemon Athletica Inc. projected a better-than-expected full-year outlook. 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.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.8% as of 9:32 a.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 0.7%
- The Stoxx Europe 600 rose 1.2%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was little changed at $1.0770
- The British pound was little changed at $1.2535
- The Japanese yen fell 0.2% to 139.03 per dollar
Cryptocurrencies
- Bitcoin rose 1% to $27,131.75
- Ether rose 1.3% to $1,892.9
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.62%
- Germany’s 10-year yield advanced four basis points to 2.29%
- Britain’s 10-year yield advanced two basis points to 4.14%
Commodities
- West Texas Intermediate crude rose 2.6% to $71.95 a barrel
- Gold futures fell 0.2% to $1,992.50 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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