US government bonds and stocks fall after hot jobs report

US government bonds and stocks were sold off after employment data showed hot business conditions, prompting traders to boost their expectations of an interest rate hike by the Federal Reserve.

Treasury yields rose after a closely watched US jobs report showed employers added 528,000 jobs in Julymore than double the 250,000 that economists had expected and up sharply from 398,000 in June.

The two-year Treasury yield, which is influenced by monetary policy expectations, rose more than 0.2 percentage point to 3.27 percent — a sharp jump for a market that usually moves in small increments. Long-term bonds have come under more subdued pressure.

Meanwhile, the S&P 500 was down 0.4 percent in the afternoon as traders were concerned about the potential for tighter interest rate hikes from feed it. The high-tech Nasdaq Composite, whose components are particularly sensitive to interest rates, was down 0.8 percent. Both indices regained some losses earlier in the day.

“The narrative would be that it got really hot, the Federal Reserve was right, and the markets were wrong,” said Jim Poulsen, chief investment analyst at The Leuthold Group. “I think it’s a muted response…in the stock and bond market to the emotion generated by the headline numbers.”

Max jobs data for the week as market participants boosted their expectations for monetary tightening in the US after comments by several Federal Reserve officials.

Mary Daly, president of the Federal Reserve Bank of San Francisco, said the central bank was “Not close at all“With its battle to cool inflation, which continues to rise to 40-year highs. Chicago Fed President Charles Evans said he believes a 0.5 percentage point increase at the next policy meeting in September would be appropriate. However, he left the door open In front of a bigger rise of 0.75 percentage point, which he said “could be good too”.

Trading in federal fund futures on Friday showed that markets expect the Federal Reserve’s key interest rate to peak at 3.64 percent in March 2023, up from 3.46 percent before the jobs report was released. The federal funds rate is currently in a range of 2.25 to 2.50 percent.

Strong jobs data, which also showed the unemployment rate returned to its lowest level in half a century, helped calm some fears that the world’s largest economy could be headed into a recession. It could also give the Fed an impetus to continue its rapid increases in interest rates, after it pushed borrowing costs up 0.75 percentage points in June and July.

“The unexpected acceleration in non-farm payroll growth in July, combined with a further decline in the unemployment rate and a renewed rise in wage pressure, mocks claims that the economy is on the brink of recession,” Michael said. Pierce, an economist at Capital Economics, who added that “every detail [of the report] It appears to support the continued aggressive rate hike from the Federal Reserve.”

However, the impact of the jobs report on the treasury market has exacerbated the extent to which two-year Treasury yields are outpacing those in the 10-year note. A so-called yield curve inversion is usually seen as an indication of an impending economic downturn. After the data, the difference between yields has been at its most reversible since August 2000.

The US dollar followed higher Treasury yields on Friday, with an index that tracks the currency up against six of its peers by 0.8 percent. The British pound and the euro fell by about 0.6 percent, while the Japanese yen fell by about 1.7 percent.

On the equity front, European shares slid, with the regional Stoxx 600 Index closing 0.8 percent lower. Asian stocks gained, with Hong Kong’s Hang Seng Index up 0.1 percent.