Yields surge on blowout jobs report. Treasury yields soared 8-10 bps in the immediate aftermath of a stronger-than-expected payrolls print, pushing markets further towards the prospect of a Fed rate hike. The 2-year yield closed 10 bps higher at 4.15% (up 15 bps on the week), while the 10-year closed 6 bps higher at 4.53% (up 9 bps on the week). Futures markets now have a rate hike fully priced in by the end of the year. Meanwhile, equities sold off as AI names continued to slide, with the S&P 500 and NASDAQ closing 2.64% and 4.18% lower, respectively.
Payrolls nearly double estimates. Nonfarm payrolls data today showed 172k jobs added in May, well above estimates of 88k. Job gains for March and April were also upwardly revised by a combined 93k, with the final April figure coming in at 179k jobs added, well above the initial 115k. Hiring was led by leisure and hospitality, local government, and health care sectors. The unemployment rate held steady at 4.3% and average hourly earnings rose 0.3% MoM, both in line with expectations. Today’s upside surprise reinforces signs of a resilient labor market and dampens the case for near-term rate cuts ahead of the June FOMC meeting next week.
US, Mexico, Canada likely to miss trade deal renewal date. The US-Mexico-Canada Agreement, a trade pact signed by President Trump during his first term, included a July 1 renewal deadline to extend the agreement for 16 years. The deal remains effective through at least 2036 even if not all three nations renew, provided no country exits the pact entirely. The US is expected to not formally renew the USMCA, as Trade Representative Jamieson Greer recently said, “I don’t think we’re going to renew it outright, but we’ll engage in the separate negotiations.” The US has already entered into separate talks with Canada and Mexico on trade policies, some loosely tied to the USMCA. Canada and Mexico are two of the United States’ largest trading partners, with the three doing nearly $2 trillion in trade together annually.