Markets Prepare For Fed Hike

? Feb Nonfarm reports 235K jobs added to U.S. economy, but market expected more

? Hawkish Draghi comments aid EUR/USD to highest since Feb, at 1.07

? Higher bond yields drag S&P500, Dow, NASDAQ to losses

? Oil prices slide 9.3% weekly on crude buildup

A tense trading week ended with upsized volatility on Friday, as markets prepare for the home stretch ahead of the Fed’s rate announcement, due Wednesday. The day saw a strong Nonfarm Payrolls figure celebrating 235K jobs added to the U.S. economy during the month of February, and Unemployment receding to 4.7%. However, the ADP employment print, scoring a juggernaut +298K jobs gain on Wednesday stirred higher expectations for the Nonfarm.

The Euro gained sharply vs. the Dollar following the data, hitting the highest since early Feb for the currency pair, at 1.07. Backwind for the Euro began picking up pace as early as Wednesday, on hawkish remarks made by ECB president Draghi. These included the Italian economist arguing that there is no longer a “sense of urgency” in applying additional monetary stimulus, while adding, “We don’t anticipate that it will be necessary to reduce rates further.”

Bond market reaction to the nonfarm figure was certainly on the downside. Sure, U.S. fixed income markets are still pricing-in 100% odds for a rate hike by the Fed on Wednesday. However, they also expressed lowered expectations for the rate path of the Fed in the coming quarters – the U.S. 2 year bond’s yield, which moves inversely to its price, receded from a 1.38% level to about 1.35% by the end of the day.

After six consecutive weeks of gains, the S&P 500 stock index was down 0.4% this week, to 2.372.60 points. The Dow, similarly, lost 0.5% during the week and the Nasdaq shelled off a smaller 0.1%. Looking for culprits, one needs to note that while longer tenors of the U.S. yield curve also suffered declines on Friday, zooming out a bit reveals a U.S. financing market that is not very accommodative. Ending the week at 2.57%, the yield of the U.S. 10 year bond, namely, is about 0.14% higher than its average since the start of the year and is about 0.73% higher than its average in 2016.