Positive NFP Report Fuels Strong Reactions Across Multiple Markets

Volatility hit the financial markets on Friday and for the first time in weeks, the trade felt “normal” with reactions in multiple markets, across multiple sectors. It was almost as if investors returned from summer vacation for just one day to trade the U.S. Non-Farm Payrolls report. On the other hand, it also felt like investors threw everything they could at the markets ahead of the start of a summer break that could extend into U.S. Labor Day holiday in early September.

U.S. Economic Data

The primary driver of the price action on Friday was the U.S. Non-Farm Payrolls report. According to government, the U.S. economy added 209,000 jobs in July, while the unemployment rate fell to 4.3 percent, the lowest since March 2001. The payrolls number exceeded the median forecast of 183,000, while the unemployment rate met expectations.

The most closely watched number of the report was the average hourly wages. It was unchanged from previous months with average hourly earnings up 2.5 percent on an annualized basis. The average work week also was unchanged at 34.5 hours. Stated another way, Average Hourly Earnings were up 0.3%, equally the forecast. This was up from the previous 0.2% read.

Looking at the internals of the report, the number of employed Americans hit a new high of 153.5 million thanks to a surge of 345,000. The employment-to-population ratio also moved up to 60.2 percent, tied for the highest level since February 2009.

In addition to the strong July report, June’s 222,000 gain was revised up to 231,000 though May was cut from 152,000 to 145,000.

U.S. Stock Market

Stock market investors liked the news, rising shortly after its release and adding to those gains throughout the session. The blue chip Dow Jones Industrial Average rose to its 8^th straight record close. The financial sector led both the Dow and the benchmark S&P 500 higher. The tech-based NASDAQ Composite also posted a modest gain.

U.S. Treasurys

U.S. Treasury futures fell on the NFP news, after the benchmark 10-year yield climbed to 2.264 percent, while the short-term two-year yield rose to 1.355 percent. The news was bullish enough to sway Federal Funds futures traders. According to the CME Group’s FedWatch tool, market expectations for a December rate hike are now approximately 50 percent, up from 47 percent.

U.S. Dollar

The U.S. Dollar posted its biggest one-day gain against a basket of major currencies for the year. The rise in Treasury yields made the U.S. Dollar a more attractive investment. The Greenback was also helped by comments from National Economic Council director Gary Cohn about lowering the U.S. corporate tax rate.

Gold and Crude Oil

Gold prices retreated on Friday, driven lower by the rise in U.S. Treasury yields, the U.S. Dollar rebound and increased demand for higher risk assets.

Crude oil also rose in reaction to the strong jobs report which could lead to increased demand. However, gains were tempered by concerns over rising OPEC exports.