Stocks Soared and Treasury Yields Edged Up After Payrolls and Labor Market Expanded

Barry Adams
02 Jun, 2023
New York City

The latest employment situation report and the swift passage of the debt ceiling accord with bipartisan support lifted market sentiment on Wall Street. 

Non-farm payrolls expanded for the 29th month in a row and job gains in May were near the monthly average over the last one year, indicating a resilient labor market. 

In addition, investors reacted positively to smaller gains in wages, suggesting weaker wage inflation supporting the case for the Fed to pause aggressive rate hikes at the next policy meeting on June 14. 

The combination of healthy job gains, moderate wage increases and rebound in unemployment rate offered a reason to invest to a diverse set of investors. 

After a volatile week where events in Washington, D.C. dominated financial news flow, the S&P 500 is trading higher 2.6% and the Nasdaq by 3.3%. 

Fitch Ratings said it will keep the U.S. "AAA" debt rating on its negative watch list, despite the  recent accord to suspend its debt ceiling. 

"Repeated political standoffs around the debt-limit and last-minute suspensions before the x-date (when the Treasury’s cash position and extraordinary measures are exhausted) lowers confidence in governance on fiscal and debt matters," noted the rating agency in its statement released Friday. 

The latest debt accord suspended the debt ceiling until Jan 1, 2025 only after the Biden administration agreed to restrain the federal government's non-military discretionary spending, broaden work requirements for food stamps and rescinding of unspent $30 billion of Covid stimulus. 

The agreement leaves the door wide open for the U.S. Congress to authorize additional funds for military and emergency programs as deemed necessary by lawmakers.  

 

May Employment Data Highlighted Resilient Labor Market

The U.S. economy added 339,000 jobs in May, and March and April data were revised higher, the U.S. Bureau of Labor Statistics reported Friday. 

 Job gains occurred in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.

Job gains in May were in line with the monthly average of 341,000 over the last twelve months. 

Professional and business services added 64,000, government at all levels increased 56,000, health care 52,000, leisure and hospitality 48,000, construction 25,000, warehousing 24,000 and social assistance 22,000. 

Expanding payrolls also attracted more people to labor markets, driving jobless rate higher, according to the Household Survey conducted by the agency. 

The unemployment rate increased by 0.3 percentage point to 3.7% in May, and the number of unemployed persons rose by 440,000 to 6.1 million. 

In May, average hourly earnings for all employees on private nonfarm payrolls  rose by 11 cents, or 0.3%, to $33.44 and average   hourly earnings have increased by 4.3% over the last 12 months. 

March and April employment data were revised higher by 93,000 total. 

The March employment was revised up by 52,000, from 165,000 to 217,000, and the April data was revised up by 41,000, from 253,000 to 294,000.

 

U.S. Indexes & Yields 

The S&P 500 index increased 1.5% to 4,282.67 and the Nasdaq Composite increased 1.0% to 13,231.84. 

The yield on 2-year Treasury notes increased to 4.52%, 10-year Treasury notes edged up to 3.69% and 30-year Treasury bonds held at 3.88%. 

Crude oil increased $1.82 to $71.82 a barrel and natural gas prices increased 1 cent to $2.16 a thermal unit. 

Traders are looking forward to OPEC+ meeting this weekend, and the crude oil prices are likely to fall sharply if oil cartel fails to announce additional production quota. 

 

U.S. Stock Movers

Lululemon Athletica Inc soared 14% to $374.35 after the athletic apparel retailer reported sharply higher revenue and earnings and the company lifted its full-year outlook.  

Revenue in the latest quarter jumped 24% to $2.0 billion and net income rose to $2.28 a share. 

The company revised its full-year revenue from between $9.31 billion and $9.41 billion to between $9.44 billion and $9.51 billion. 

Five Below Inc increased 6.4% to $179.43 after the deep discount retailer reported higher-than-expected earnings but the company offered a cautious outlook for the second quarter. 

MongoDB Inc soared 26.7% to $372.50 after the database developer reported higher-than-expected quarterly earnings and also estimated a surge in second quarter revenue. 

 

European Markets Rally 

European markets rebounded sharply on the final day of the week after the U.S. Senate passed the debt ceiling agreement. 

The bill is ready to be signed by the U.S. President Joe Biden,  just in time to avert the catastrophic debt default date set by the U.S. Treasury as early as June 5. 

Investors also digested the latest data on industrial production in France and a sharp decline in registered jobless people in Spain.  

After a volatile week, the DAX index was nearly unchanged, the CAC 40 declined 1.5% and the FTSE 100 index decreased 0.2%. 

Despite the volatility of the last two weeks rooted in the U.S. debt default worries, three leading benchmark indexes are trading near record peaks. 

 

French Industrial Production Rebounded In April

Industrial output increased 0.8% from the previous month in April after declining 1.1% in March. France's statistical office INSEE reported Friday. 

On an annual basis, industrial production rebounded 1.3% from a decline of 0.1% in March. 

Output rebounded in all sectors and the sharp recovery in petroleum production led the advance. 

Manufacturing production increased 0.7% from 1.1% fall after petroleum refining production soared 23.6% from 45.6% decline,  electrical equipment recovered to 1.5% from 6.2% fall, mining & quarrying, energy, water supply, waste management increased 1.8% from a 1.2% decline and construction increased 0.8% from a fall of 0.9%.

 

Jobless On Record In Spain Dropped In May

The number of people registered as jobless in Spain, at the end of May, fell 49,260 or 1.8% from the previous month to a total of 2.74 million, the lowest for the month of May since 2008.

From a year ago, unemployment fell 183,881 or 6.29%, according to data released by the Ministry of Labor and Social Economy on Friday. 

Unemployment fell across all sectors, in the services by 34,665 or 1.74%, in industry by 4,622  or 2.07%, in construction by 3,896 or 1.82% and agriculture by 2,501 or 2.30%.

By region, the largest decreases were reported in Andalucía of 6,521, in Castilla-La Mancha of 6,138 and Galicia of 4,909.

The number of registered unemployed young people aged less than 25 declined 7,208 or 3.7% to 188,043, the lowest in May since record keeping began in 1986.  

A day ago, Eurostat reported Spain led the Euro Area with the highest jobless rate of 12.7% in April.

 

Europe Indexes & Yields 

The DAX index increased 1.3% to 16,051.23, the CAC-40 index rose 1.9% to 7,270.69, and the FTSE 100 index advanced 1.6% to 7,607.25.

The yield on 10-year German Bunds inched lower to 2.28%, French bonds traded lower to 2.84%, the UK gilts held at 4.15% and Italian bonds decreased to 3.99%.

The euro edged lower to $1.077, the British pound to $1.254 and the Swiss franc to 90.52 cents.

Brent crude increased $1.81 to $76.12 a barrel and the Dutch TTF natural gas increased €0.59 to €23.69 per MWh.

 

Europe Stock Movers 

Resource stocks extended gains for the second day in a row after copper extended gains of the last two weeks. 

Antofagasta, Anglo American and Glencore jumped between 4% and 6%. 

BP Plc and Shell Plc increased between 1.5% and 2.0% ahead of the OPEC+ meeting on June 4. 

Traders are betting that the oil producing nations may announce additional production cuts to support the faltering oil prices, after the commodity fell 10% in May. 

Dechra Pharmaceuticals plc soared 8.2% to 3,652.0 pence after the veterinary products developer agreed to go private in a £4.46 billion deal with EQT. 

ProSiebenSat.1 Media SE increased 2.6% to €8.04 after the Czech investment group lifted its stake in the media company. 

PayPoint Plc increased 6.5% to 402.10 pence after the company reiterated  its full-year outlook.