Treasury yields surged on strong jobless claims and productivity data. The dollar rose broadly. Friday's jobs report will test whether the move holds.
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Treasury yields climbed sharply Thursday, with the two-year note rising more than 7 basis points and the 10-year note reaching 4.67%, up nearly 6 basis points. Solid U.S. economic data drove the move. Initial jobless claims came in better than expected. Productivity data also pointed to an economy still generating healthy output. Traders read the data as giving the Federal Reserve room to stay patient on rate cuts, with some tilting toward a hike.
The July employment report from the Labor Department arrives Friday at 8:30 a.m. ET. Economists expect payroll growth to rebound after June's disappointing print. The unemployment rate is expected to hold steady. A stronger-than-expected report would likely reinforce Thursday's move higher in yields and the dollar, while weighing on equities as Fed easing bets get pushed back. Weaker hiring or softer wage growth could trigger a pullback in yields, pressure the dollar, and lift stocks.
Fed funds futures now price about a 56% chance of a rate hike at the September meeting, up from roughly 50% a week ago.
Crude oil added to the upward pressure on yields. WTI crude settled at $77.93, up 3.60%, after reports that Iran is considering restricting U.S. and Israeli vessels from transiting the Strait of Hormuz. The news revived supply concerns and the risk that higher oil prices could slow progress on inflation.
The dollar gained broadly, helped by higher yields and geopolitical uncertainty. The greenback rose 0.45% against the yen, 0.68% against the Swiss franc, 0.27% against the euro, 0.40% against the Australian dollar, and 0.32% against the New Zealand dollar. The smallest gain was 0.05% against the Canadian dollar.
Stocks fell as borrowing costs rose and geopolitical concerns resurfaced. The Dow Jones Industrial Average dropped 464.05 points, or 0.85%, led by industrial and economically sensitive names. The S&P 500 slipped 13.61 points, or 0.18%. The Nasdaq Composite proved more resilient, down just 15.09 points, or 0.06%, as strength in select technology shares limited losses.
Gold fell $11, or 0.27%, and silver declined 0.87% as higher real yields weighed on precious metals. Bitcoin eased 0.30%, closing near $64,400.
With Thursday's labor data reinforcing economic resilience and higher oil prices adding a fresh inflation risk, Friday's employment report now takes center stage. A stronger-than-expected payroll gain could further support yields and the dollar. A softer report may provide some relief to both bonds and equities.
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