After Friday's robust labor market data, market speculation on Fed interest rate hikes is making a U-turn and resuming its upward trend.
The U.S. economy added 236,000 nonfarm payrolls in March, almost in line with the 239,000 expected. The unemployment rate unexpectedly declined from 3.6% in February to 3.5% in March, but average hourly wages rose 0.3% month-over-month and 4.2% on the year, generally in line with forecasts.
At the industry level, leisure and hospitality jobs grew by 72,000 and education and health services, up by 65,000, were the main sector contributors the increase in NFPs.
Traders See Another Interest Rate Hike Ahead: The chances of the Federal Reserve raising interest rates by 25 basis points in May are estimated at 68% after sliding as low as 40% last week, according to CME Group's Fedwatch.
The whole Fed rate expectations curve shifted upward following the March job report as investors started to worry about the possibility of higher-for-longer interest rates.
Bank of America Securities said the March employment report keeps the Fed on track to hike by 25bp at its May meeting.
“The labor market is showing signs of cooling off, but it remains very tight, and this is the last jobs report before the May meeting,” BofA said.
Treasury Yields Rise, Dollar Strengthens, Stocks Wobble: Yields on two-year Treasury notes, a barometer for short-term Fed rate forecasts, increased by 10 basis points to 3.95%. The yield on the 10-year U.S. Treasury note increased by nearly 10 basis points to 3.41% on Friday before retracing 5 basis points on Monday.
On Monday, the U.S. dollar Index rose 0.4% in midday European trade.
Stocks began to slide as investors reassessed the prospects for interest rates.
Futures contracts on the Nasdaq 100 index plummeted 0.8% before the U.S. market opened, while those on the S&P 500 sank 0.5%.
Read our latest U.S. pre-market roundup.
Rate Repricing May Cause The Most Pain In Tech Stocks:
Among the main U.S. stock market indices, the Nasdaq 100, which is tracked by the Invesco QQQ Trust Series 1 QQQ, has benefited the most from the decline in Fed rate expectations over the last month.
The ETF tracking the leading U.S. technology index gained more than 9% in the last month, compared to a 4.4% increase in the Dow Jones Industrial Average ETF DIA and a 5.4% increase in the SPDR S&P 500 Trust ETF SPY.
If Fed rate expectations rise from here, technology stocks may be more vulnerable to downside pressure.
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