Robust Payrolls Report Fuels Fed Speculation

US stocks are rallying to record highs while Treasurys are selling off across the curve after a stronger-than-expected payrolls report boosted confidence in the US economy, causing market participants to reevaluate the probability of a Fed rate hike this year.  The report showed nonfarm payrolls rose by 255,000 (170K expected), the largest monthly gain since January, after an upwardly revised 292,000 gain in June.  Gains were broad-based, with manufacturing, health care, retail, leisure and hospitality, and temp agencies all contributing.  In addition to the strong headline number, the income component was also robust as average hourly earnings gained 0.3% for the month and the average workweek increased 0.1 hours to 34.5, the highest level since January.  Labor market momentum has clearly picked up over the past few months, and a September rate hike appears to be a possibility again according to certain market pundits.  Fed Chair Yellen is scheduled to speak in Jackson Hole on August 26th, which will draw plenty of attention ahead of the September 21 FOMC meeting.

All three major US stock indexes are currently up close to 1%, while Treasury yields and swap rates are 5-9 bps higher across all major maturities.  The two-day rally in crude fizzled out as supply/demand fundamentals came back into focus.  Both WTI and Brent crude are down close to 1%.
 
Have a great weekend.