Market Wire - Strong Jobs Report Raises Rate Expectations, Lowers Risk Appetite

381,000 jobs were created in the United States last month - an above-expectations print that will lower fears of an imminent recession, and strengthen bets on an aggressive pace of tightening from the Federal Reserve. According to data released by the Bureau of Labor Statistics this morning, the unemployment rate was unchanged at 3.6 percent in June.

Average hourly earnings rose 0.3 percent month over month, and are up 5.1 percent over last year. The participation rate moved down to 62.3 from 62.3 percent in the prior month - something that will concern central bankers concerned about incipient wage pressures. When numbers are reconciled between this week's Job Openings and Labor Turnover survey and the non-farm report, employers are offering roughly twice as many positions as there are available workers.

Ahead of the release, investors were positioned for a 250,000-job gain, with the unemployment rate seen holding at 3.6 percent, and earnings up 0.3 percent month over month.

Treasury yields are up and the dollar remains higher on the week as traders lower odds on a recession, while raising expectations for a 75 basis point move at the Federal Reserve’s July meeting. 2-year bonds are ratcheting up as we go to pixels.

Canada shed 43,200 new positions in June, and the unemployment rate fell to 4.9 percent - a new record low - as large numbers left the workforce. Economists had expected a 23,000-job gain, with unemployment holding at 5.1 percent. Average hourly wages grew 5.2 percent on a year-over-year basis, up from the 3.9 percent pace recorded in May as almost 100,000 workers moved to the sidelines and the participation rate fell from 65.3 percent from 64.9 percent.

The Canadian dollar is trading sharply lower as interest rate expectations drop further out on the curve - but we suspect this knee-jerk reaction could fade in the coming hours. With inflation pressures remaining elevated and the economy growing, the Bank of Canada remains highly likely to raise rates by 75 basis points next week - today’s numbers are reflective of a jobs market operating well beyond full employment, not one that is exhibiting recessionary tendencies.