Stocks, US Dollar And Treasury Yields Soar: Robust Job Market Crushes Recession Fears

The U.S. economy continues to show robust gains in the job market, with nonfarm payrolls increasing to 253,000 more than projected in April and the unemployment rate reverting to a 50-year low of 3.4%, allaying worries of an impending economic recession. 

Wage increases also came in higher than expected, with the average hourly gains rising 0.5% versus 0.3% monthly.

Immediate Market Reactions: 

The stock market reacted positively to the April job report, with E-mini futures on the S&P 500 ticking up for the session, and rising above the 4,100 level. 

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Chart: S&P 500 E-mini futures; price action on May 5, 2023 following April's US Job Market Report Release

The U.S. dollar was the clear winner, with the DXY index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP jumping 0.3% after the data. 

Chart: US Dollar Index (DXY); price action on May 5, 2023 following April's US Job Market Report Release

Treasury bonds declined, with yields rising by 6-7 basis points across all important tenors.

The two-year yield, the most sensitive to interest rate expectations, moved 7bps higher to 3.87%. 

The 10-year yield, also climbed by 7bps to 3.45%. The longer-dated 30-year bond yield, which is highly sensitive to economic performance, inflation dynamics and recession risks, rose 6bps to 3.80%.

Chart: Treasury yields (2yr, 10yr, 30yr); price action on May 5, 2023 following April's US Job Market Report Release

Speculators have marginally increased their bets on a Fed interest rate hike in June, with the CME Group Fedwatch tool pricing a small 8% possibility, as opposed to zero prior to the release of April's job market report, and discarding any probabilities for a rate cut. 

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