Updated Nov. 6, 2015 9:02 a.m. ET
U.S. stock futures slipped after a stronger-than-expected jobs report bolstered the case that the Federal Reserve will raise short-term interest rates next month.
S&P 500 futures declined 9 points, or 0.4%, and had been down slightly ahead of the report. Dow futures also indicated a 0.4% decline. Futures prices don’t always mirror levels at the opening bell.
The Stoxx Europe 600 was volatile, bouncing in and out of negative territory.
The Labor Department said U.S. employers hired at their strongest pace this year in October, a sign of sturdy economic growth that is likely to reassure Federal Reserve officials as they weigh raising interest rates.
Nonfarm payrolls rose a seasonally adjusted 271,000 in October, while economists surveyed by The Wall Street Journal had predicted payrolls would rise by 183,000.
A solid jobs number bolsters the case for the Federal Reserve to raise short-term rates in December. Low interest rates have been viewed as a key reason stocks have continued to climb since the financial crisis. At the same time, investors say a healthier economy should help lift corporate profits and provide support for stocks even if interest rates do go up.
“It’s a big number,” said Joe Manimbo, senior market analyst at Western Union. “This is a very positive indicator for a rate increase next month, and very positive for the dollar.”
Fed Chairwoman Janet Yellen said earlier this week that December would be a “live possibility” for an interest rate rise if the U.S. economy remains on track. The Fed has kept its benchmark short-term interest rate near zero since December 2008.
“If you’re investing rather than trading, this is good news,” said Charlie Dreifus, portfolio manager with Royce & Associates LLC. “What it says is the economy is improving. More people working, making more money, cannot in any way be viewed as anything negative.” The consumer discretionary area is an obvious beneficiary, he said, as the economy gets better.
On the trading floor at futures brokerage R.J. O’Brien & Associates in Chicago, exclamations and shouts broke out after the headline number beat expectations. The pings and zings of instant messages picked up immediately after the report hit. Someone shouted, “where’s hourly earnings?” The average hourly earnings increase of 2.5% year over year is the most important number of this strong jobs report, said managing director John Brady, adding that it gives the Fed some comfort that we’re not in a disinflationary environment. He added that he expects the Fed to raise rates in December.
The dollar surged against its peers after the report. The Wall Street Journal Dollar Index, which gauges the buck against a basket of 16 currencies, was recently at 90.40, its highest level since December 2002, amid gains against the euro, yen and other currencies.
Higher rates are a boon to the dollar, as they make the currency more attractive to yield-seeking investors.
The euro was recently down 1.3% at $1.0740, its lowest level since April. The dollar was up 0.7% at Y122.64.
Meanwhile, prices of U.S. government debt fell, sending the yield on the two-year note to the highest level in more than five years.
The yield on the benchmark 10-year Treasury note also rose to its highest since July. Yields rise as bond prices fall.
Fed funds futures, used by investors and traders to place bets on central-bank policy, showed Friday that they see a 70% likelihood of a rate increase from the Fed at its Dec. 15-16 policy meeting, according to data from CME Group.
The probability was 58% ahead of the jobs report. It was 38% before the Fed’s interest-rate statement last month.
“The data is blowing me away and December is a virtual certainty for the Fed to hike” if the jobs number isn’t revised sharply lower, said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at the United Nations Federal Credit Union in New York.
Mr. Sullivan said he has cut holdings of Treasury bonds and invested into floating-rate securities whose rates rise along with market interest rates, a way to prepare for the Fed’s tightening cycle.
Friday’s selling pressure sent the yield on the two-year note to 0.942%, the highest intraday level since May 2010, according to Tradeweb. Yields rise as bond prices fall.
The yield, highly sensitive to changes in the Fed’s interest rate policy outlook, was recently at 0.914%, compared with 0.842% right before the jobs release.
The yield on the benchmark 10-year note rose 2.309% compared with 2.243% before the data.
In commodities, Brent crude oil slipped 0.3% to $47.83 a barrel. Dollar-denominated commodities that trade internationally, including oil, tend to fall in price to offset a rising dollar.
Gold prices tumbled. The most actively traded gold contract, for December delivery, was recently down $16.40, or 1.5%, at $1,087.80 a troy ounce on the Comex division of the New York Mercantile Exchange.
“It’s very hard to look at this report and think that the Fed doesn’t move forward on it, and for the metal markets it’s not bullish,” said Ira Epstein, a broker with Linn & Associates in Chicago.
In Asian trade, Japan’s Nikkei Stock Average rose 0.8% to its highest close since Aug. 21. The Shanghai Composite Index gained 1.9%, capping a strong week for the index. China’s stocks have gained more than 20% since their low for the year in August.
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