Markets waffle after May payrolls exceed expectations

Dow was up 23, decliners over advancers 5-2 & NAZ  retreated 46.  The MLP index inched up to 280 & the REIT index dropped 4+ to the 371s.  Junk bond funds were little changed & Treasuries were heavily sold, taking yields substantially higher (more below).  Oil crawled higher in the 75s (more below) & gold nosedived 60 to 2330.

Dow Jones Industrials 

US job growth accelerated again in May, defying expectations for a slowdown, even as the unemployment rate rose to the highest level in more than 2 years.  Employers added 272K jobs in May, the Labor Dept said, easily topping the 185K gain forecast.  But the unemployment rate unexpectedly inched higher to 4% against expectations that it would hold steady at 3.9%.  It marked the highest level for the jobless rate since Jan 2022.  Wage growth also remained strong last month, with average hourly earnings, a key measure of inflation, rising 0.4%, more than expected.  On an annual basis, wages increased 4.1% in May.  Markets are closely watching the report for evidence that the labor market is continuing to soften after months of solid job gains as Federal Reserve policymakers weigh when to start cutting interest rates.  Although inflation has fallen sharply from a peak of 9.1%, progress has cooled sharply since then.  Policymakers have signaled that they are in no rush to cut & that incoming economic data will guide their decision.  Health care continued to lead the way in job creation, onboarding 68K new workers in May.  Other sectors showing notable growth included the gov (43K), leisure & hospitality (42K), & professional, scientific & technical services (32K).  The labor market has remained historically tight over the past year, defying expectations for a slowdown.   Economists say it is beginning to cool after last year's blistering pace, but it is still nowhere near breaking.

America's job market jumps by 272K in May while unemployment unexpectedly rises

The yield on the 10-year Treasury surged as investors assessed a strong nonfarm payrolls number for May that fueled concerns that the Federal Reserve may not cut rates as soon as expected.  The yield on the 10-year Treasury jumped 14 basis points to 4.422% & the 2-year Treasury yield was last at 4.862% after rising by 14 basis points.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Nonfarm payrolls rose by 272K & surpassed the estimate for 190K. The unemployment rate, however, ticked up to 4% for the first time since Jan 2022.  The data comes after ADP’s private payrolls report showed that companies added 152K jobs in May, below the 175K estimate.  Many investors had hoped that today's data would indicate that the labor market & economy are slowing, convincing the Fed to consider easing monetary policy & cutting interest rates.  The Fed is due to meet next week, but is widely expected to keep rates unchanged then as well as at their Jul meeting. CME Group's FedWatch tool showed that traders are pricing in a 68% chance for a rate cut for Sep.  The ECB yessterday moved to cut interest rates for the first time since 2019, even as inflationary pressures linger.  Questions remain about whether there will be additional cuts this year, & if so, how many.

10-year Treasury yield shoots higher after May payrolls top expectations

Crude oil futures were on pace for a 3rd straight weekly loss on worries that demand may be softening even as OPEC+ plans to increase production.  US crude oil & global benchmark Brent sold off earlier in the week after OPEC+ members announced that they would start phasing out 2.2M barrels per day in production cuts starting in Oct.  Poor US manufacturing data & weak private payrolls also weighed on the market.  Oil prices have bounced back over the past 2 days on hopes that lower rates might boost demand, but the 2 crude benchmarks (WTI & Brent) are still down about 2% for the week.  The OPEC+ production increase would start when refineries are down for fall maintenance & then ramp up as demand typically weakens heading into winter.  Still, oil market analysts have widely described this week's sell-off as an overreaction, noting that the OPEC+ production increase does not start until Oct.  In the meantime, oil balances should tighten as the cuts remain in place during the summer driving season when demand typically rises.

Crude oil heads for third straight weekly loss as supply and demand weigh on market

Traders are confused, not knowing where to take the stock market.  Generally strong payroll reports are favorable.  But not today.  Evidence that parts of the economy are too hot for the central bank's fight against inflation, feed a narrative of keeping rates higher for longer.  Prospects for rate cuts coming soon are diminishing.