Stocks and bonds faced a lot of instability, with a hot jobs report fueling bets the Federal Reserve will keep tightening even if officials downshift the pace of hikes this month.

A surge in Treasury 10-year yields fizzled out, while two-year rates -- which are more sensitive to imminent Fed moves -- remained higher. The S&P 500 almost erased a slide that earlier topped 1 per cent. The dollar wavered.

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Rather than boosting their bets for the Fed’s December meeting, traders increased their wagers on where rates will top out. Swaps showed a peak of 4.98 per cent before a pullback that still left the contract up eight basis points from where it was before the jobs data. The current range is between 3.75 per cent and 4 per cent.

U.S. employers added more jobs than forecast and wages surged by the most in nearly a year. Nonfarm payrolls increased 263,000 in November, while the unemployment rate held at 3.7 per cent. Average hourly earnings rose twice as much as predicted.

“To have 263,000 jobs added even after policy rates have been raised by some 350 basis points is no joke,” said Seema Shah at Principal Asset Management. “The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates. What is there in this jobs report to convince them not to take policy rates above 5 per cent?”

That’s why the Fed’s “dot plot”, which the central bank uses to signal its outlook for the path of policy, is in focus at the moment. Anna Wong at Bloomberg Economics says officials may have to boost their terminal-rate forecast from what they wrote down in the September, possibly to 5.25 per cent.

Fed Bank of Chicago President Charles Evans said rates will need to be raised to a higher peak even as the central bank slows the pace of increases. He said policymakers were likely to downshift to 50 basis points, after raising rates by 75 basis points at four straight meeting.

Evans remarks are the latest from a central bank official, including Powell earlier this week, to suggest a half-point hike when they gather Dec. 13-14.

More Comments:

Steven Blitz at TS Lombard:

  • In sum, the Fed is far from done – 75 is on the table for the Dec. meeting, although given all the communication around slowing to 50 it will be hard for them to back away at this point. Nevertheless, a long tack for raising rates means a higher terminal rate.

Callie Cox at eToro:

  • A strong job market gives the Fed more basis to hold rates higher for longer, even if they start slowing hikes down. A high-rate environment is a challenging one to invest in, and we could be in for a tougher slog to the highs until inflation comes down significantly.

Ronald Temple at Lazard Asset Management:

  • Investors need to reassess their optimism regarding the end of policy tightening – both the level of terminal rates, and how long the Fed keeps rates there.

Chris Zaccarelli at Independent Advisor Alliance:

  • This jobs report is another example of why the Fed is going to be fighting inflation for a much longer period than many currently expect. Next year is likely to be a volatile one as a weakening economy and tight financial conditions is our base case.

Krishna Guha at Evercore ISI:

  • We are confident that the report will have no effect on the decision to slow the pace of Fed rate hikes to 50bp in Dec. But it means the median Fed official will likely write down a peak rate of 5 per cent to 5.25 per cent rather than 4.75 per cent to 5 per cent and the Fed will maintain a hawkish tone at that meeting.

David Russell at TradeStation Group:

  • The Fed also has to think about their credibility. After clearly signaling a turn away from 75 basis points, they’re unlikely to change that two weeks from now. Instead, we’ll probably see more hawkish projections on the dot plot.
  • Stock investors’ optimism around a cooling labor market and a Fed pivot is overdone, according to Bank of America Corp. strategists, who recommend selling the rally ahead of a likely surge in job losses next year. Their note was published before Friday’s jobs data.
  • “Bears (like us) worry unemployment in 2023 will be as shocking to Main Street consumer sentiment as inflation in 2022,” strategists led by Michael Hartnett wrote in a note showing that global equity funds just had their biggest weekly outflows in three months. “We’re selling risk rallies from here,” he said, reiterating his preference for bonds over equities in the first half of 2023.

Some of the main moves in markets:


  • The S&P 500 fell 0.1 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 0.4 per cent
  • The Dow Jones Industrial Average was little changed
  • The MSCI World index fell 0.2 per cent


  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1 per cent to US$1.0533
  • The British pound rose 0.3 per cent to US$1.2281
  • The Japanese yen rose 0.8 per cent to 134.31 per dollar


  • Bitcoin rose 0.6 per cent to US$17,030.7
  • Ether rose 1.2 per cent to US$1,291.66


  • The yield on 10-year Treasuries declined three basis points to 3.48 per cent
  • Germany’s 10-year yield advanced four basis points to 1.86 per cent
  • Britain’s 10-year yield advanced five basis points to 3.15 per cent


  • West Texas Intermediate crude fell 1.3 per cent to US$80.16 a barrel
  • Gold futures fell 0.2 per cent to US$1,811.70 an ounce