Stocks fall on further anticipation for Fed tightening. The S&P loses 0.2% to 2,092 and the Dow falls 0.3% to 17,849. Positive data today pushed forward markets expectations regarding when the Fed will raise interest rates. Data today showed that 280k jobs were added compared to the estimated 220k. Unemployment was slightly higher to 5.5% against the estimated 5.4% but this number was not weighed as heavily as the jobs added. In addition, hourly earnings were up 0.3% against the estimated 0.2%. As a result, there was a selloff in bonds and the dollar appreciated. These results support the idea that the weak 1Q results were temporary. The market for Fed funds futures shows the probability for September tightening to be 54%, up from 46% before the data release. The ten year yield jumped 10 basis points to 2.40% and the two year increased 6 basis points to 0.72%. This week had bond yields in Europe increasing as inflation expectations increased. The bund finished the week with a yield of 0.85%. The spread between bund and Treasury yields fell this week.
Annualized wage gains were the strongest in three years with earnings increasing in May at a 2.3% annualized rate. Volatility in bond markets increased as a result of the report with the Treasury yield up almost 30 basis points from where it started in the beginning of the week, and the bund yield almost twice as high as it started. Mario Draghi says that investors should get accustomed to volatility driver by the Fed, the situation in Greece, and easing actions by the ECB all expected to continue over the summer.
The US dollar increases after the strong economic data. The euro fell 1% to $1.1133 and the pound fell 0.8% to $1.5429 against the dollar. The dollar index rose 0.9% to 96.41 with a rate increase in September probable.
Alexis Tsipras says the offer presented by creditors was “absurd” and “irrational.” However he is still interested in a compromise and claims that the two parties are closer than ever on reaching a deal. Greek stocks don’t share his optimism, with indexes falling 5% on the day and the ten year yield increasing 40 basis points to 11.3%. Talks are set to resume on Thursday of next week, as Greece officially delays the IMF payment that was due today.