Solid Employment Report Causes Spike in Interest Rates


Overnight, all of the Asian indices were in the green on news that the Chinese government had set up several special economic zones within the country, which have typically resided in the Guangdong Province. Japanese indices were up more up than 1.5% while Chinese indices all closed in positive territory. Yesterday, while US markets were closed, the ECB and BoE took extraordinary steps to give forward guidance on monetary policy, something neither central bank has done in their history.

The biggest market mover today in what was otherwise a quiet session was the June employment report. Nonfarm payrolls rose by 195,000 vs. an estimated gain of 165,000 though unemployment remained unchanged at 7.6%. However, the 3-decimal unemployment remained nearly unchanged at 7.557% from 7.555% the month prior, which is very close to rounding down to 7.5%. There were a number of positive details to the report including a rising average weekly earnings, a rising participation rate, and an increase in the number of people who voluntarily left their jobs. On the other hand, the number of workers who took part-time employment due to economic reasons rose at an alarming rate. Lastly, the biggest market mover came from the positive revisions of 70,000 payrolls over the prior two months.

The Treasury market was the most volatile following the employment data as it priced in an accelerated pace of increases in the Fed funds rate over the coming years. The 10-year Treasury yield rose 22 basis points to 2.72%, the largest one-day move in interest rates this year. In response, a number of mortgage originators raised the interest rate on their loans by 0.25%.

Equities remained in positive territory despite the massive shock to interest rates. S&P 500 future s (INDEXSP:.INX) were up 16 points to 1625 at the time of the employment report and at one point touched negative territory in the early going. Later in the day, prices stabilized slightly below this level with the number of advancing stocks roughly equal to the number of declining stocks. Real estate investment trusts (REITs) and other interest rate-sensitive sectors were the clear underperformers while financials and tech led.

Monday's Financial Outlook

Monday will bring May growth in consumer credit data, which is forecast to rise by an adjusted rate of $12.5 billion from the month prior. May will be the first month where consumers have experienced sharply higher interest rates so the outcome will be important in determining whether or not it has affected loan growth.

Globally, Germany and Switzerland will release industrial production and the Sentix eurozone investor confidence survey will be released. Additionally, Canada will release housing starts and building permits from June.

Alcoa ( AA ) will report after the close and kick off 2Q earnings. The other notable report for Monday is WD-40 Company ( WDFC ).

Twitter: @Minyanville

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: AA , WDFC



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