A robust US jobs report released on Friday had a dual impact, elevating the dollar while casting a shadow over both stocks and bonds.
The data intensified concerns that interest rates could remain elevated for an extended period and stirred anxieties about the state of the post-pandemic economy.
The US Department of Labor disclosed that nonfarm payrolls surged by 336,000 jobs in the previous month, while August’s figures were revised upwards, showing the addition of 227,000 jobs instead of the initially reported 187,000. September’s job growth figure nearly doubled the economists’ consensus forecast of 170,000, leaving markets to grapple with questions about whether a stronger-than-anticipated economy was truly slowing down and what measures would be required to curb inflation.
Marvin Loh, Senior Global Macro Strategist at State Street in Boston, noted that “the markets have been reacting to their view that the Fed is as confused as we are.” He speculated whether the economy had fundamentally changed to the point where real yields needed to be higher than the five years preceding the pandemic.
Following the report’s release, the yield on the 10-year Treasury note surged over 13 basis points to reach a new 16-year high at 4.8874 percent, contributing to this month’s substantial bond sell-off. Bond yields move inversely to bond prices.
Futures traders adjusted their predictions, raising the probability of a Fed rate hike in November from 23.7 percent to 30.7 percent after reviewing the data, according to CME Group’s FedWatch Tool. Expectations now priced the Fed’s overnight rate above 5 percent through next July.
Gennadiy Goldberg, Head of US Rates Strategy at TD Securities USA in New York, commented, “We’ll see how much tightening the market does for the Fed, but a run at the 5 percent mark in 10-year yields may be inevitable if the data continues to hold up like this.”
The US dollar index gained 0.29 percent, heading towards a 12-week winning streak after reaching its highest level in nearly 11 months earlier in the week. Meanwhile, the yen approached 150 yen to the dollar, a level that many believe could trigger intervention by Japanese officials.
The euro faced its 12th consecutive week of declines against the dollar.
Simon Harvey, Head of FX Analysis at Monex Europe, stated that the “monstrous payrolls” figures and the upward revision to August numbers would bolster the dollar’s ascent. However, Harvey noted that the strong employment figures meant markets could not completely discount the possibility of a Fed rate hike in the fourth quarter, despite coinciding with weaker wage data.
US stocks initially dipped across all 11 S&P 500 sectors, although they later recovered some of their losses, with the Nasdaq moving into positive territory. The robust job data also prompted European markets to pare gains. Crude oil prices continued to slide amid concerns that sustained high interest rates could curtail global economic growth and reduce fuel demand. News that Russia would lift a ban on pipeline diesel exports via ports also weighed on oil prices.
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Eurozone bond yields increased, while the closely-watched spread between German and Italian borrowing costs, an indicator of financial stress in Italy, reached its highest level since March. Global bond funds reported significant weekly outflows.
MSCI’s global stock index dipped by 0.03 percent, while the pan-European STOXX 600 index lost 0.15 percent. The Dow Jones Industrial Average fell by 0.26 percent, the S&P 500 by 0.23 percent, and the Nasdaq Composite added 0.02 percent.
US crude declined by 0.26 percent to $82.10 per barrel, and Brent crude stood at $83.94, down 0.15 percent for the day. Spot gold rose by 0.5 percent to reach $1,828.19 an ounce.
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