U.S. Indexes were hit hard on Friday, with the NASDAQ 100 the clear laggard, falling more than 4% as technology stocks remained under pressure. Broadcom (AVGO) extended losses following its earnings report earlier in the week, while additional weakness came after the FT reported that Meta (META) is considering raising tens of billions of dollars through a stock offering. As a result, Technology was the clear sectoral laggard, followed by Consumer Discretionary and Communication Services. However, the main macro driver of the session was the stronger-than-expected US jobs report, which set the tone for trading throughout the day and reinforced expectations that the Federal Reserve may need to maintain a restrictive policy stance for longer. Non-Farm Payrolls rose by 172k in May, well above the 85k consensus forecast, while April was revised higher to 179k from the initially reported 115k. The report prompted a hawkish repricing in rates markets, with traders now fully pricing a 25 basis point Fed rate hike by year-end, compared with around 16bps of tightening priced before the release. As a reminder, the Fed enters its blackout period this weekend ahead of the June 17th meeting. The stronger labour market data drove broad Dollar strength, weighing on most G10 currencies. The Antipodes underperformed amid both the stronger Dollar and weaker risk sentiment, while the Canadian Dollar was among the outperformers following its own strong employment report. Treasuries bear flattened in response to the payrolls data as traders boosted Fed hike expectations, while precious metals came under notable pressure from the combination of higher yields and a stronger Dollar. Meanwhile, crude prices softened amid the absence of any fresh escalation between the US and Iran heading into the weekend. Negotiations remain ongoing, with reports continuing to point to disagreements over key issues, although Axios suggested the remaining gaps between the two sides are narrowing. The US payrolls report for May was notably stronger than expected, with Non-Farm Payrolls rising by 172k (exp. 85k), above the top end of the consensus range. April’s figure was revised up to 179k from 115k, while March was revised up by 29k to 214k. This left the two-month net revisions +93k (prev. -16k). The Unemployment Rate was unchanged at 4.3%, in line with expectations, while the participation rate also held steady at 61.8%. Looking at the breakdown, private payrolls surged 120k (exp. 85k, prev. 177k), Government rose 52k (prev. 2k), and manufacturing was little changed at 7k (exp. 2k prev. 0k). Leisure and hospitality added 70k jobs in May, well above the average monthly gain of 14,000 over the prior 12 months, likely due to the World Cup. Earnings metrics were in line with St. consensus, M/M at +0.3% (prev. +0.2%) and Y/Y at 3.4% (prev. 3.6%). For the Fed, the report is unlikely to materially alter expectations for the 17th of June meeting, where policymakers are widely expected to leave rates unchanged. However, it strengthens the case that the next move in rates would be higher rather than lower. That shift has already been reflected in money market pricing, with markets now pricing in a 25bps rate increase by year-end, compared with 16bps before the data. The Fed has remained more focused on inflation risks than labour market weakness, particularly given the resilience of employment conditions, and this report is likely to reinforce that view. The 17th of June meeting will also be Kevin Warsh’s first as Fed chair following his appointment by Trump, who has repeatedly expressed a preference for lower interest rates. Fed Member Hammack said it is reasonable to keep rates steady for now, but if recent trends continue it could be appropriate to act against high inflation. Hammack added, while she never makes too much of any one data point, Friday’s jobs report reaffirms that the labour market appears to be roughly in balance, and u/e rate remaining stable at 4.3% is right around her definition of full employment. The Cleveland Fed President noted, by contrast, inflation is telling a different story… it is high, moving higher, and believe persistently high inflation is the bigger concern. Ahead, Hammack noted for today, it is reasonable to keep rates steady given the uncertainties around the economic outlook. But if recent trends continue, it may soon be appropriate to act. Elsewhere, Oil closed lower by 2.5% while Gold ended Friday’s volatile trading session with a loss of 3.5%. Meanwhile, Silver fell a whopping 7.5%.
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