SP500 Tests New Highs As Traders Focus On Strong Non Farm Payrolls Report

Key Insights

• Non Farm Payrolls exceeded analyst expectations, while Unemployment Rate grew to 3.7%. 
• Gold declined as Treasury yields rebounded after the recent pullback. 
• SP500 tested new highs as traders cheered the debt ceiling deal and focused on the strong Non Farm Payrolls report.

On June 2, U.S. released Non Farm Payrolls and Unemployment Rate reports for May. Non Farm Payrolls report showed that the economy added 339,000 jobs, compared to analyst consensus of 190,000. Unemployment Rate increased from 3.4% in April to 3.7% in May, while analysts expected that it would grow to 3.5%.

The increase in the Unemployment Rate showed that higher interest rates could have finally put material pressure on the job market. The FedWatch Tool indicates that there is a 74.8% probability that Fed will leave the federal funds rate unchanged at the next meeting in June.

Interestingly, the federal funds rate is expected to rise from 500 – 525 bps to 525 – 500 bps at the July meeting. Traders expect that the Fed will cut the federal funds rate to 475 – 500 bps by the end of the year. It should be noted that market players look ready to price in various scenarios.

U.S. Dollar Index settled near the 103.50 level after the release of the job market reports. Treasury yields are moving higher as bond traders take some profits off the table after the debt ceiling was raised, but this move does not provide material support to the American currency.

Rising Treasury yields have put pressure on gold, which moved towards the $1965 level. The higher-than-expected Unemployment Rate did not provide support to gold markets as traders believe that the Fed will be forced to raise rates in July.

SP500  tested new highs as the U.S. raised the debt ceiling in time to avoid a default. Stock traders are not worried about rising Unemployment Rate as it remains at low levels.

For a look at all of today’s economic events, check out our economic calendar.