NEW YORK Feb 3 — Treasury yields jumped, the dollar surged and world equities rallied yesterday after a blowout US jobs report scuttled any lingering expectations of a near-term cut in interest rates and highlighted a strong economy.
Nonfarm payrolls increased by 353,000 jobs in January, the Labour Department’s Bureau of Labour Statistics said, almost double the 180,000 forecast by economists polled by Reuters.
The benchmark 10-year Treasury note yield US10YT=RR shot above 4 per cent and the dollar gained against all major currencies as employers added far more jobs than expected and average hourly earnings increased 0.6 per cent after rising 0.4 per cent in December.
The data came after the Federal Reserve on Wednesday pushed back against market expectations for an imminent rate cut, with Chair Jerome Powell warning inflation was “still too high.”
“The market has been horribly wrong about the near-term trajectory of Fed policy and this is another instance where that’s the case,” said Kevin Gordon, senior investment strategist at Charles Schwab in New York.
“The market’s been correct in assessing that the inflationary backdrop is going to help set the conditions for the Fed to cut,” he said. “But it’s probably ultimately the labour market that’s going to push them into cutting and then will determine the pace and the size of cuts themselves.”
Employment growth had been decelerating, especially into the fourth quarter of last year, but the jobs report showed job creation accelerating, said Joseph LaVorgna, chief US economist at SMBC Nikko Securities America.
“When you go through all the specific details, there were really very few if any pockets of weakness. It was just a very, very strong report and that by itself would suggest that a recession certainly isn’t imminent,” he said.
MSCI’s gauge of stocks across the globe closed up 0.64 per cent while on Wall Street, the tech-laden Nasdaq and benchmark S&P 500 .SPX climbed 1.74 per cent and 1.07 per cent respectively, as investors cheered robust quarterly results from Meta Platforms and Amazon.com.
Gains by the Dow Industrials were a bit more subdued, rising 0.35 per cent, but low unemployment and a strong economy suggest corporate earnings can increase.
Meta surged 20.3 per cent to hit a record high after issuing its first dividend days ahead of Facebook’s 20th anniversary, along with a revenue and profit beat on advertising sales in the holiday shopping period.
US regional bank stocks recovered slightly from a brutal sell-off sparked by concerns that New York Community Bancorp’s dismal earnings signaled broader problems for the sector.
NYCB shares were up 5.0 per cent following a nearly 45 per cent plunge over the last two sessions after the lender slashed its dividend and posted a surprise loss on commercial real estate loans.
In Japan, Aozora Bank 8304.T slumped to a three-year low after it took a huge loan-loss provision against US office loans.
After the jobs report, money markets projected the Fed would lower its target rate, currently in a range of 5.25 per cent-5.5 per cent, by 123.8 basis points by year-end FEDWATCH, down from 140.3 bps just before the data was released.
Futures pared bets for a rate cut in March to 20.5 per cent from 36.5 per cent just before the report, and slashed the likelihood of a 25 or 50 bps cut in May to 61.8 per cent from 91.6 per cent, according to CME Group’s FedWatch Tool.
“I’ll trade a stronger economy with less rate cuts than a weaker economy with more rate cuts,” said Keith Lerner, chief market strategist at Truist Wealth in Atlanta.
The two-year Treasury yield, which reflects interest rate expectations, surged 17.6 basis points to 4.370 per cent and the 10-year’s yield rose 16.5 basis points to 4.028 per cent. The two-year’s rise was on track to post the biggest one-day gain since May 2023, and the 10-year since July 2023.
Investors brushed off a big Chinese market selloff caused by a lack of hoped-for government stimulus.
The blue-chip CSI300 hit a five-year low, with the Shanghai Composite 1.5 per cent lower on the day and down 6.2 per cent for the week, its largest weekly loss since October 2018.
The dollar index, a measure of the US currency against six others, jumped to a seven-week high as it rose 0.83 per cent, while the euro was down 0.74 per cent to US$1.0792. The yen weakened 1.24 per cent to 148.29 per dollar.
Oil prices fell by about 2 per cent after the US jobs data reduced the odds of imminent rate cuts, which could dampen crude demand if restrictive monetary policy curbs the economy.
US crude futures settled down US$1.54 at US$72.28 a barrel, while Brent fell US$1.37 to settle at US$77.33. Both benchmarks posted losses of more than 7 per cent for the week.
Gold prices slipped as the dollar jumped, making bullion more expensive for overseas buyers, and higher yields reduced the appeal of non-interest bearing gold.
US gold futures settled 0.8 per cent lower at US$2053.70 an ounce. — Reuters
