U.S. government bond and stock futures sold off on Friday after jobs data showed red-hot labor conditions, leading traders to raise expectations for a rate hike by the Federal Reserve.
U.S. Treasury yields soar after closely watched U.S. jobs report shows employers add 528,000 jobs in Julymore than double the 250,000 expected by economists and a sharp increase from 398,000 in June.
Two-year U.S. Treasury yields, which are sensitive to monetary policy expectations, surged more than 0.15 percentage point to 3.21 percent — a sharp rise for a market that typically moves in small moves. Pressure on longer-dated bonds has been milder. Meanwhile, S&P 500 futures fell 1.1%.
Fed funds futures trading now shows that the market expects the Fed’s main interest rate to hit 3.61% in February 2023, compared to expectations of 3.42% in the previous session. The federal funds rate is currently between 2.25% and 2.50%.
Strong jobs data also showed a drop in the unemployment rate, quelling fears that the world’s largest economy may be heading for a recession. It could also provide the Fed to continue raising rates at a rapid pace after the Fed pushed borrowing costs up 0.75 percentage points in June and July.
“The unexpected acceleration in nonfarm payrolls growth in July, combined with a further decline in the unemployment rate and a resurgence of wage pressures, makes the suggestion that the economy is on the brink of recession a mockery,” said Michael Pierce, an economist at Capital Economics. “All the details [of the report] There appears to be support for the Fed to continue to raise rates aggressively.”
The dollar followed U.S. Treasury yields higher on Friday, with the index tracking the greenback up 1% against six peers in its most recent move. The pound and euro each lost about 1%, while the yen fell about 1.4%.
On the stock market, European stocks fell, the regional Stoxx 600 fell 0.8%, Asia rose and Hong Kong’s Hang Seng rose 0.1%.