Stocks Rally, Treasurys Edge Lower After Mixed US Jobs Report

Headlining the jobs report released by the Labor Department this morning, nonfarm payrolls rebounded strongly in June with a 222,000 increase.  The figure easily surpassed expectations of +178,000 and is well above May’s revised level of +152,000, bringing the three-month average of gains up to 194,000.  The largest tallies of employment additions were recorded in the service sector, as healthcare payrolls jumped by 59,000 while professional and business services gained 35,000 jobs.  Gains in government employment also totaled 35,000, an eleven-month high.  The unemployment rate unexpectedly ticked higher to 4.4%, rising from a 16-year low of 4.3% in May, as more Americans looked to join the workforce – seen in the increase of the labor participation rate to 62.8%.  Furthermore, 4.7 million people went from out of the labor force to employed, the highest number on record.  On the negative side, weakness was recorded in wage growth, where average hourly earnings rose a meager 0.2% MoM (+0.3% expected), which was slightly higher than May’s downwardly revised reading of +0.1%.  Compared to a year earlier, wages in June increased a modest 2.5%.  The overall mixture of strong payroll gains, slightly higher unemployment and sluggish wage growth is expected to do little to alter the Fed’s current projected path of one additional rate hike in the second half of 2017.  Next Wednesday financial markets will hear from Fed Chair Janet Yellen as she gives her semiannual monetary policy testimony before the House Financial Services Committee.

US Treasurys held within a tight range throughout the day, and the yield on the 10-year note is currently trading near 2.39%, roughly 9 bps higher than where it began the week.  All three major US stock indices traded mostly higher on the day, despite being held lower by shares in the energy sector. The tech-heavy Nasdaq led the equity indices at +1.1% for the day, finishing the week near the same level as where it opened on Monday.  Crude oil prices dropped roughly 2.8% as the US reported increases in both production and rig counts this week.  WTI crude futures are down $1.25 on the day to $44.25/barrel while Brent crude is $1.35 lower to $46.75/barrel.