Swap Rates Rise Over 15bps As Labor Market Roars in May

Nonfarm payrolls resurgence sparks a significant rate climb. Strong nonfarm payrolls and average hourly earnings in May drove a 10-16bp rate rise today. Despite the significant move, rates are 20-30bps lower than their 2024 highs, with a significant amount of the decline having occurred over the past week. The dollar climbed alongside rates, with the US Dollar Index up ~0.80% to nearly 105. Elsewhere, equities closed modestly lower as markets fear further inflationary pressures. The S&P 500, NASDAQ, and DJIA sold off 0.11% – 0.23%.

Labor data blows past expectations. 272,000 new jobs were added in May according to today’s Nonfarm Payrolls release, surging past growth estimates of 180,000 and far above April’s 165,000 downwardly revised growth. Average hourly earnings also surpassed expectations on a MoM (0.4% act. vs. 0.3% est.) and YoY (4.1% act. vs. 3.9% est.) basis. Those results overshadowed May’s slight unemployment uptick from 3.9% to 4.0%. Wells Fargo chief Economist Jay Bryson commented, “It’s a very Fed-unfriendly report – an easing-unfriendly report,” and he went as far as to say May’s results alone could be a reason for the Fed to hold rates steady for “the next several months.”

Two central banks cut rates this week, plus a look ahead at the upcoming FOMC meeting. Ahead of next week’s FOMC meeting, both the European Central Bank and Bank of Canada cut rates by 25bps for the first time this cycle. Despite the moves, the Fed is not expected to follow suit. Fed Funds futures suggest a near-zero chance of a rate cut next week, where a decision will be announced on Wednesday. Rate cuts are not fully priced in until December, a shift from yesterday where the first move was priced in by November.