Bond yields jumped higher after a US jobs report showed employers added 528,000 jobs in July, more than double the 250,000 economists had expected and up sharply from 398,000 in June. The yield on the two-year note, which is sensitive to expectations of monetary policy, rose more than 0.2 percentage point to 3.26 percent – a sharp jump for a market that usually moves in small increases. Longer-dated bonds came under more subdued pressure. Meanwhile, the S&P 500 was down 0.6% by the afternoon as traders fretted over the prospect of further rate hikes from the Fed. “The narrative will be that it’s gotten too hot, the Fed is right and the markets were wrong,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “I think it’s a silent response. . . in the stock and bond market in relation to the sentiment caused by the securities’. Trading in federal funds futures now shows that markets expect the Fed’s main interest rate to reach 3.64 percent in February 2023, down from a 3.42 percent estimate in the previous session. The federal funds rate currently ranges from 2.25 to 2.50 percent. Strong jobs data, which also showed the unemployment rate falling, fueled concerns that the world’s largest economy may be heading for recession. It could also prompt the Fed to continue its rapid hikes, after pushing borrowing costs higher by 0.75 percentage points in both June and July. “The unexpected acceleration in non-farm payrolls growth in July, along with further declines in the unemployment rate and renewed pressure on wages, make a mockery of claims that the economy is on the brink of recession,” Michael said. Pearce, an economist at Capital Economics, who added that “all the details [of the report] appears to support continued aggressive rate hikes by the Fed.” The U.S. dollar followed Treasury yields higher on Friday, with an index tracking the currency against half a dozen peers up nearly 1 percent. The pound and the euro fell about 0.7% each, while the Japanese yen fell about 1.8%. In equities, European stocks fell, with the regional Stoxx 600 down 0.8%, following gains for Asian shares, with Hong Kong’s Hang Seng index up 0.1%.
