■ U.S. October Nonfarm Payrolls surprises at 271K vs. 185K expected

■ U.S. hourly wages rise to 2.5% Year over Year

■ USD strengthens vs. major currencies on hawkish Fed expectations

■ S&P500 climbs to highest since July

The much anticipated U.S. Nonfarm Payrolls for October was published at 271K jobs last Friday, strongly outperforming the analyst consensus of 185K and significantly improving over September’s modest 142K jobs figure. It was further published that U.S. Unemployment continued to decrease. This time it went from 5.1% to 5%, which is the first time since 2008 when U.S. unemployment was so low. Additionally, the diminishing of supply, as articulated by decreasing unemployment, also translated to signs of rising wages, with average hourly wages’ annual rate of increase climbing to 2.5%.

U.S short term government bond yields, which move inversely to their price, have climbed sharply on the news, pricing in higher expectations for a rate hike by the Fed in its upcoming, December, meeting. The probability derived from the U.S. bond market for a December liftoff surged to over 70%, from about 56% before the release. Response at the U.S. equity pre-market open was initially quite negative, seeing E-Mini contracts on the S&P500 lose about 0.6% on expectations that the U.S. monetary policy is due to be less accommodative in the near future. As the U.S. daily trading session progressed, however, it saw stocks gradually recover from the negative sentiment. The S&P500 ended the daily trading session with a mere 0.03% loss.

Significant losses were seen in gold price, which dropped some 2% on the news, touching USD 1085.56 per oz. Much of this, however, can be interpreted, rather, as the greenback strengthening. The Dollar Index, an average of exchange rates between the USD and major currencies, added over a percentage point on the news. This was comprised of EUR/USD losing some 1.2%, USD/JPY adding about 0.7% and GBP/USD decreasing about 0.7%.

With great power comes great responsibility

Looking back, expectations for a Fed rate hike in September’s decision were quite high at the time. At some point in August the probability for such a hike, derived from the bond market, was estimated at over 50%, though it did slide towards 30% as the actual announcement became closer. Looking ahead to December 16th, markets should now be very sensitive to any commentary made by Governor Yellen, or any other officials regarding how they see the data. Nevertheless, with the Nonfarm print currently pushing expectations for December’s decision close to 70%, it’s likely that the hike would be seen as the more likely of actions by the Fed, even as the date of the decision comes closer. Somewhat surprisingly, to a broad extent the bond market’s current pricing isn’t very evident in equity. Reviewing equity market data since that decision on September 17th, one notes significant gains in equity. Namely, the S&P 500 is up 5.2% since, reaching a level of 2116.48 points for the index, on Tuesday, which is its highest since July.

Judging by Friday’s data, one objective of the Fed’s dual mandate, maximum employment, had to a great extent been fulfilled. As for the other, “stable prices”, Ex. Food and Energy annual inflation currently stands at a 1.9% annual gain. And it’s likely that headline inflation, currently at 0%, would have been close to that had it not been for the recent year’s drop in energy prices.

In implementing the recent years’ accommodative monetary policy the Fed has gained great power as a regulator. And with great power, inevitably, comes great responsibility. Evidently, the Fed is thus far juggling both bond and equity markets, as well as its dual mandate objectives with flying colors. Continuing to do so, on the other hand, should not prove trivial.