Employment Rate Drops, Bond Futures Jump

December 2, 2016 5:18AM CST

The interest rate futures complex of commodities futures markets is riding the wave of the November Employment report, with 30-year bond futures yields trending higher after unemployment rate in the U.S. showed a drop to a nine-year low and added payrolls came in within expectations.

The March contract in 30-year bond futures was up .65 percent at 150-16 in Friday mid-day commodities futures trading. On Thursday, the same 30-year Treasury bond futures contract fell to a 17- month low. Analysts say there is support today for the entire interest rate futures complex due to what some considered weaker-than anticipated employment numbers.

The March contract in 10-year Treasury note futures was up .48 percent at 123-185, while the 5-year note for the same contract month rose .33 percent to 117-307.

Friday’s highly-anticipated labor data showed the U.S. economy added 178,000 jobs in November, and the unemployment rate fell to 4.6 percent, according to U.S. Department of Labor. Private-sector jobs added totaled 156,000, which has some economists and commodities futures markets watchers speculating upon an upcoming recession. With the current tight labor market conditions, some say President-elect Donald Trump may find it hard to find construction workers to support his plans for expansion in the industry.

The report, the last major employment data before the Federal Reserve's December policy meeting, was close to many economists’ expectations, which ranged between 175,000 and 180,000 jobs added to the economy. Economists had also expected the unemployment rate to remain at 4.9 percent. Average hourly earnings declined .12 percent compared to an expected increase of .2 percent, and the average weekly hours remained unchanged at 34.4.

The commodities futures markets have priced in a quarter-point interest rate increase at the December Federal Open Market Committee meeting, and the November Employment report supports that view, analysts say. According to some commodities futures markets analysts, he probability that the FOMC will increase the fed funds rate at the December 13-14 meeting is 94 percent compared to 99 percent on Thursday. In early November, the probability was 68 percent.

Next week, commodities futures markets participants are expected to remain somewhat on the sidelines ahead of the following week’s FOMC meeting. However, the calendar contains several economic reports of note, including November Institute for Supply Management Services data, third-quarter Productivity and Unit Labor Costs, and the October Trade Balance. The week also brings October Consumer Credit data, the December Michigan Consumer Sentiment report, and October Wholesale Inventories.

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