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MONEY MARKETS-Solid jobs data reinforce bets on U.S. rate increases
May 5, 2017 / 7:07 PM / in 7 months

MONEY MARKETS-Solid jobs data reinforce bets on U.S. rate increases

* Futures imply traders see 80 pct chance on rate hike in June

* Traders price in over 50 pct chance on two hikes by year-end (Adds market action, quote)

By Richard Leong

NEW YORK, May 5 (Reuters) - U.S. short-term interest rates futures fell on Friday as a solid payrolls report in April buttressed bets the Federal Reserve would increase rates further in the coming months due to a further tightening in the labor market.

U.S. employers hired 211,000 workers last month, nearly tripling the 79,000 gain in March, while the jobless rate declined to 4.4 percent, a near 10-year low. Moreover, a measure of wage growth grew by a 0.3 percent clip, the Labor Department said on Friday.

“It’s a solid number. It keeps the Fed on course for a rate hike in June and September and possibly some kind of tapering in balance sheet reinvestments by the end of the year,” said Robert Tipp, chief investment strategist at PGIM Fixed Income in Newark, New Jersey.

Other analysts and investors said they grew more confident about two more rate increases by year-end following the latest payrolls report.

“We regard those potential moves less as a declaration of victory in achieving the Fed’s dual-mandate objectives, and more as a recognition that financial conditions are excessively easy at this point in the cycle,” said Rick Rieder, chief investment officer of global fixed income at BlackRock, the world’s largest asset manager.

Moreover, San Francisco Federal Reserve President John Williams said on Friday the April jobs report was “good data.”

However, rates futures suggested traders remained mildly skeptical the Fed would raise rates more than once the rest of the year amid geopolitical uncertainties and inflation stuck below its 2 percent goal.

Federal funds futures implied traders saw nearly a 79 percent chance the U.S. central bank would raise interest rates to a range of 1.00-1.25 percent at its June 13-14 policy meeting , little changed from late on Thursday and up from about 71 percent a week ago, CME Group’s FedWatch program showed.

They suggested traders priced in a 89 percent chance for a rate increase to 1.00 percent-1.25 percent at the Fed’s September meeting, up marginally from Thursday and up from 84 percent a week earlier.

Fed funds futures implied traders expected a nearly 55 percent probability of two rate increases by the end of 2017 , little changed on the day and up from 50 percent a week ago, according to CME’s FedWatch.

Reporting by Richard Leong; editing by Chizu Nomiyama and Jonathan Oatis

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