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US Bonds Extend Decline After Jump in Job Growth: Markets Wrap

By Isabelle Lee

US stocks dropped and Treasury yields turned higher after a stronger-than-forecast hiring report sparked speculation the Federal Reserve has room to remain aggressive as it battles inflation.

Screen display stock figures inside the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Thursday, Jan. 13, 2022. Japan’s largest exchange operator disclosed the components of three new market sections on Tuesday, but the long-awaited shake-up of the country’s sluggish stock market is attracting more skepticism than excitement. Photographer: Toru Hanai/Bloomberg

The S&P 500 slumped more than 1%, while the 10-year Treasury rate pushed toward 3% after data showed employers added more jobs than expected last month. The Fed is expected to raise rates by 50 basis points at its next two meetings. Market-derived odds for a third hike of that magnitude in September held steady near 85% after the jobs report. The dollar was little changed and gold slipped.

Tech stocks led a broad decline, with Tesla Inc. off more than 7% after Chief Executive Officer Elon Musk said the carmaker needs to cut 10% of its staff. His dour assessment of the economy was the latest in a string of warnings from Corporate America that tougher times lie ahead.

Investors remain beholden to economic data and how it will impact the pace of US monetary tightening, as worries mount that a restrictive Fed could throw the world’s largest economy into a recession. The strong jobs report quelled some concern that growth was slowing too sharply, while at the same time cleared the path for the Fed to stay aggressive.

US May nonfarm payrolls rose 390,000 compared to estimates of 318,000, according to a Bloomberg survey of economists. Meanwhile, the unemployment rate remained unchanged at 3.6% in the month, versus expectations of 3.5%. 

“The labor market is tight and job growth is stable,” Jeffrey Roach, chief economist for LPL Financial, said after the jobs report. “The Federal Reserve can continue to tighten financial conditions and remove the historic level of accommodation in the markets.”

Here’s what else Wall Street is saying about US payrolls:

  • “Another month of solid job growth in May is further evidence that the U.S. economy was not in a recession in the spring … Americans continue to return to the labor force as the rising cost of living pressures household finances.” – Bill Adams, chief economist for Comerica Bank.
  • “Equity futures are initially reacting negatively to the report. We look for volatility to continue as investors struggle to find an appropriate multiple on record earnings. However, full employment in the U.S. is a solid buffer against the risk of slowing global growth.” – John Lynch, chief investment Officer for Comerica Wealth Management
  • “Recession fears are now getting dismissed by markets participants and the job report agrees with that.” – Florian Ielpo, head of macro at Lombard Odier Asset Management
  • “Best part about the employment report is the uptick in participation … The bad part is that we still need millions more working to reduce the pervasive shortages driving inflation. It’s frustrating that the Fed is trying to damp down demand and restrict hiring when we need to see a string of strong jobs reports.” – Bryce Doty, senior vice president at Sit Investment Associates
  • “The Fed decision is a done deal at this point, so this report is more about what it tells us about underlying demand and the economy’s ability to handle everything. It’s a good report that shows the general population is coming back into the labor force.” – Shawn Cruz, head trading strategist at TD Ameritrade

Oil was steady, heading for its sixth straight week of gains. The yen held near the psychologically important 130 level against the greenback. And Bitcoin fell back below $30,000.

How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Here are some key events to watch this week:

  • US May employment report Friday
  • The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1.2% as of 9:54 a.m. New York time
  • The Nasdaq 100 fell 1.8%
  • The Dow Jones Industrial Average fell 0.7%
  • The Stoxx Europe 600 fell 0.1%
  • The MSCI World index fell 0.8%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro was unchanged at $1.0747
  • The British pound fell 0.1% to $1.2563
  • The Japanese yen fell 0.5% to 130.48 per dollar

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 2.94%
  • Germany’s 10-year yield advanced three basis points to 1.27%

Commodities

  • West Texas Intermediate crude rose 0.8% to $117.81 a barrel
  • Gold futures fell 0.2% to $1,867 an ounce

More stories like this are available on bloomberg.com.

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