(Bloomberg) — US stock futures turned lower and Treasuries sank after data showed a booming labor market that might prompt the Federal Reserve to raise rates sharply at its next meeting.
Contracts on the S&P 500 slid more than 0.5% and the two-year Treasury yield jumped toward 3.2% after employers added 528,000 jobs last month, more than double what economists expected.
Wage growth also came in stronger than anticipated.
The strong jobs report validates the Fed’s view of a resilient economy that can withstand additional interest-rate hikes. Traders must now recalibrate expectations for Fed policy, with a hike of three-quarters of a percentage point now the more likely scenario at the September meeting as the central bank battles inflation.
A handful of Fed officials said this week reiterated the central bank’s resolve to bring down high prices.
Among them is Fed St Louis President James Bullard, who has said he favors a strategy of front-loading big interest-rate hikes. That stance has likely strengthened after Friday’s job report, paving the path for an outsized hike and ruling out the possibility of a dovish pivot that Fed Chair Jerome Powell hinted at last week.
“Odds of a 75 bp move next month have shot up, as they should,” writes Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.
“We still get one more jobs report before the September FOMC but barring a disaster, I think 75 bp then is a done deal.”
Despite being the focus of the day for traders, the jobs report supposedly has little value for those trying to predict a recession because it’s backward-looking.
Corporate earnings, combined with thin liquidity that’s common in the summer, took the stock market on a ride this week.
Many firms beat expectations and proved they could handle high inflation and a gloomy economic outlook. But investors have resumed shunning global stocks in favor of bonds, according to Bank of America Corp.
strategists, who say it’s time to step back from US equities after July’s rally.
US-China tension also remains among the uncertainties clouding the outlook. China announced it would halt cooperation with the US in a number of areas — including working-level talks on climate change and defense — after US House Speaker Nancy Pelosi’s trip to Taiwan this week.
China also sent warships across the Taiwan Strait’s median line in the first such incursion in years, a day after likely firing missiles over the island.
West Texas Intermediate stayed below $90 a barrel.
Gold fell and Bitcoin gained.
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Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.8% as of 8:43 a.m.
New York time
- Futures on the Nasdaq 100 fell 1%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.6% to $1.0180
- The British pound fell 0.7% to $1.2080
- The Japanese yen fell 1.1% to 134.36 per dollar
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 2.78%
- Germany’s 10-year yield advanced seven basis points to 0.88%
- Britain’s 10-year yield advanced eight basis points to 1.97%
Commodities
- West Texas Intermediate crude rose 0.5% to $88.98 a barrel
- Gold futures fell 0.9% to $1,789.90 an ounce
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