**Markets React Sharply to Major Nonfarm Payrolls Miss**
*By Edward Moya | Source: MarketPulse*
The latest U.S. jobs report prompted notable reactions across global financial markets, as a weaker-than-expected nonfarm payrolls (NFP) figure sparked a shift in sentiment. After a week filled with anticipation, Friday’s disappointing labor data significantly influenced expectations surrounding Federal Reserve policy action, spurred movements in the dollar, and led to a rally in equities and Treasuries.
**Nonfarm Payrolls Disappoint Market Expectations**
The U.S. economy added only 209,000 jobs in June, compared to an expected 230,000, based on economist forecasts leading up to the release. Though the figure was still indicative of job growth, the shortfall reinforced the perception that the labor market may finally be cooling—an idea that the Federal Reserve has been monitoring closely in its battle to bring down inflation without triggering a sharp recession.
Some essential details from the employment report include:
– June NFP figure: 209,000 (Actual) vs. 230,000 (Forecast)
– Unemployment rate: 3.6 percent (in line with expectations)
– Average hourly earnings: Rose 0.4 percent month-over-month, up 4.4 percent year-on-year
– Labor force participation: Remained steady
The jobs report also revealed downward revisions to the previous months’ data. April’s NFP figure was revised down by 77,000, while May was revised lower by 33,000. This suggested that the labor market might have been weaker during the spring than previously believed.
**Market Reactions Following the Employment Print**
Following the release, a wave of volatility hit major asset classes. Markets shifted their expectations of how aggressively the Federal Reserve would tighten monetary policy in the coming months.
**U.S. Dollar Weakens**
One of the most immediate reactions was a sell-off in the U.S. dollar. Investors, who had been betting on continued rate hikes from the Federal Reserve, recalibrated their expectations.
– The U.S. Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, declined notably after the jobs data.
– EUR/USD rose as the euro benefited from dollar weakness, climbing above the 1.0950 level.
– USD/JPY also fell as traders factored in a potentially less hawkish Federal Reserve.
– Commodity-related currencies such as the Australian dollar and Canadian dollar appreciated slightly due to the improved risk sentiment and softer dollar backdrop.
**Yields Fall as Traders Adjust Fed Rate Hike Outlook**
The U.S. Treasury market responded to the report with sharp buying interest, especially in the short- to mid-term maturities. Yields fell across the curve, reflecting reduced expectations for sustained Federal Reserve rate increases.
– The 2-year Treasury yield slid by several basis points, signaling a pullback in expectations for aggressive near-term rate hikes.
– The 10-year yield also declined, with investors balancing softer labor data against still-sticky wage inflation.
– Expectations for another rate hike in July were still priced in, but projections for further increases beyond that date softened.
Traders in the Fed Funds futures market began reassessing the path of interest rates. While one more 25-basis-point rate increase in July remained the base case, probabilities for rate reductions later in 2024 began to build slightly as traders envisioned a more dovish policy stance if economic momentum continues to slow.
**Equities Rally on Hopes of a Less Aggressive Fed**
Equities welcomed the weaker jobs report. Investors interpreted the miss as a signal that the Fed might soon reach the end of its rate hiking cycle. Though the labor market remains relatively strong, the weaker payroll number helped reinforce the narrative of economic moderation.
– The S&P 500 and Nasdaq both advanced following the news, extending recent gains amid growing optimism that the Fed is approaching peak rates.
– Technology stocks outperformed
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