US stocks fall at the end of the week after jobs data reinforces the case for Fed tightening

US stocks continued their weekly decline on Friday, after the latest batch of labor market data bolstered expectations of aggressive monetary policy tightening from the Federal Reserve.

The blue-chip S&P 500 index fell 1.6% on the day, cutting gains made on Thursday and ending the week down 1.2%. The tech-heavy Nasdaq Composite also fell, down 2.5% and down 1% for the week.

The S&P 500 Index has fallen in eight of the past nine weeks, with a brief report last week when it achieve 6.6%.

The report from the US Department of Labor on Friday morning showed that the world’s largest economy added 390,000 jobs last month, modestly below 436,000 in April. However, the May figure still exceeded expectations with 325,000.

Investors are monitoring the job market situation as they gauge how well they expect the Fed to raise interest rates. Policymakers raised the central bank’s key rate by 0.75 percentage points this year and expect further aggressive monetary policy tightening as they try to reduce inflation broadcast. While the Fed seeks to maximize employment, an overheated job market could add to inflationary pressures.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, noted that while the numbers are not a “failure” performance, they underpin expectations of a “positive Fed response.”

US government debt came under some selling pressure following the jobs report, with yields on the monetary policy sensitive two-year Treasury note rising 0.03 percentage points to 2.66%. The 10-year yield, which more closely tracks the long-term economic outlook, rose 0.04 percentage points to 2.96%.

Both of these benchmark bond yields have spiked since the start of the year but have fallen from recent highs.

On the stock market, shares of Tesla fell 9.2% on Friday after Reuters reported that chief executive Elon Musk has told employees he has “extremely bad feelings” about the economy and that the automaker may need to cut about 10 percent of its workforce.

Meanwhile, the Stoxx Europe 600 index in the region gave up previous gains, falling 0.3% on the day, after closing the previous session 0.6% higher. Germany’s Dax also fell after the US opened. Markets in the UK are closed for a holiday, as are markets in Hong Kong and mainland China.

European shares began to fall after eurozone retail sales fell 1.3% month-on-month in April, the first monthly decline since the start of the year. Year-over-year, sales were up 3.9%. Economists polled by Reuters had expected 0.3% monthly and 5.4% year-on-year gains.

Analysts at ING said weak consumer confidence and high inflation have weighed on the region’s economy. While this decline may overstate aggregate consumption growth, it provides further evidence of a severe euro-area slowdown.

The retail sales figures followed stronger-than-expected economic data from Germany, with the country’s exports growing 4.4% in the March-April period.

Brent crude is only at $120/barrel. Opec and its allies on Thursday reached an agreement to accelerate oil production in July and August. The dollar index, which measures the US currency against a basket of six other currencies, was up 0.3%.

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