U.S. government bonds and stock futures sold off after jobs data showed red-hot labor conditions, prompting traders to raise expectations for a Federal Reserve rate hike.
Treasury yields edged higher after the closely watched U.S. jobs report showed employers added 528,000 jobs in July, more than double the 250,000 economists reported. expected and increased sharply from 398,000 in June.
Yields on two-year Treasuries, which are sensitive to monetary policy expectations, rose more than 0.15 percentage points to 3.21% – a leap for a market that is often volatile with gains. small. Bonds with longer maturities are under lower pressure. Meanwhile, S&P 500 futures fell 1.1%.
Federal fund futures trading now shows markets are expecting the Fed’s key rate to hit 3.61% in February 2023, from an estimate of 3.42% in the previous session. The federal funds rate currently stands between 2.25 and 2.50%.
Strong employment data, which also showed a drop in the unemployment rate, pushed back fears that the world’s largest economy could head towards a recession. It could also give the Fed an impetus for further rapid increases, after pushing borrowing costs 0.75 percentage points higher in both June and July.
“The unexpected acceleration in nonfarm payrolls growth in July, coupled with the continued decline in unemployment and rising wage pressures, makes for a mockery to claim that the economy the economy is on the brink of recession,” Michael said. Pearce, economist at Capital Economics, who added that “all the details [of the report] seems to favor the Fed continuing to raise interest rates aggressively. “
The US dollar followed Treasury yields higher on Friday, with an index that tracks the currency against half a dozen peers, up 1% in recent action. The pound and euro are both down about 1%, while the Japanese yen is down about 1.4%.
In equity markets, European shares fell with the Stoxx 600 index in the region dropping 0.8%, after Asian shares rose, with Hong Kong’s Hang Seng up 0.1%.