The dollar surged and government bonds sold off after the May employment report showed that the US economy added more jobs than expected.
First, the scoreboard:
- Dow: 17,862.00, -43.58, (-0.24%)
- S&P 500: 2,095.19, -0.65, (-0.03%)
- Nasdaq: 5,072.84, +13.71, (0.27%)
And now, the top stories on Friday:
- The economy added 280,000 jobs last month, crushing Wall Street’s forecast for gains of 226,000. The unemployment rate rose to 5.5% from 5.4% as the labour force participation rate ticked up to 62.9% from 62.8%. Jobs in the construction, retail, and healthcare industries rose, while the number of jobs in the mining sector fell for the fifth straight month. The plunge in oil prices continues to weigh on employment in that sector.
- We got more wage growth. Average hourly earnings increased by 3 cents to $US24.87 — a 0.3% month-over-month rise (versus 0.2% expected) and a 2.3% jump month-over-month (versus 2.2% estimated.) This shows the labour market is getting tighter, as employers feel more pressure to pay higher wages for their most talented employees. In a client note after the data, Deutsche Bank’s Torsten Sløk wrote, “For equities it is positive because higher wages means higher household income, which means more demand in the economy and ultimately higher topline growth for corporate America. This is what we have been waiting for since 2009. In other words, the virtuous cycle has begun.”
- The dollar spiked after the jobs report. Its index rose to as high as 96.95. It moved sharply versus its major counterparts. It touched a 13-year high against the Japanese yen, rising as high as 125.74. The euro and the Swiss Franc fell more than 1% against the dollar. Gold fell more than $US9 to as low as $US1,162.20 an ounce. And treasuries sold off, with the yield on the 10-year note spiking to a new year-to-date high of 2.44%.
- The 12-member oil cartel OPEC is maintaining its production target at 30 million barrels per day, according to Saudi Arabia’s oil minister Ali Al-Naimi. This was no surprise to markets; OPEC is fighting for its market share. OPEC held its June meeting in Vienna on Friday, and will convene again in December.
- The count of US oil rigs fell by 4 to 642 this week, the lowest level since August 2010, and the 26th straight week of declines. Data from oil driller Baker Hughes also showed that the combined count of oil and gas rigs fell by 7 to 868, the lowest level since January 2003. US oil production has increased in recent weeks. West Texas Intermediate crude oil prices were lower ahead of the data, but jumped more than 1.5% late afternoon to as high as $US59.22.
- New York Federal Reserve president still expects the Fed will raise rates this year. In a speech on Friday, he said he’s less concerned that inflation will stay low if the labour market continues to improve. How quickly rates rise will be determined by the economic outlook and markets’ response, he said.
- Shares of Palatin Technologies jumped more than 46%; on Thursday, the FDA backed a so-called female Viagra drug, and Palatin is developing something similar. Flibanserin, the FDA-backed drug, is being developed by Sprout Pharmaceuticals. Canaccord Genuity analysts raised their price target on Palatin to $US6 from $US4, noting that it could be the first drug to ever be approved for “female sexual dysfunction,” reducing the regulatory risk for these types of drugs.