Stocks fall and dollar gains after strong U.S. payrolls

Equities took a dip on Friday while the dollar gained ground and Treasury yields climbed as investors bet on a more hawkish-than-expected Federal Reserve response to a strong U.S. jobs report with employers hiring more workers than expected in November and raising wages despite recession worries.

The U.S. Labor Department reported that nonfarm payrolls increased by 263,000 jobs last month compared with economist expectations for 200,000 jobs. And average hourly earnings increases 0.6% up from 0.5% in October.

The report, which came two days after Fed Chair Jerome Powell said it could be time to slow the pace of rate hikes, made investors question whether the central banker would be able to follow through on his suggestion.

“The better-than-expected jobs report is good news for the American worker, and bad news, at least short-term, for risk assets as it supports a hawkish monetary policy by the U.S. Federal Reserve,” Tim Holland, chief investment officer at Orion Advisor Solutions in Omaha, Nebraska.

“That said, it is worth noting that the jobs report is backward looking, and that continuing jobless claims have been climbing. There is a good chance the labor market will slow meaningfully in the first half of 2023, forcing the Fed to consider a much more benign policy stance sooner than many expect.”

After the report traders were betting that the Fed seen raising its policy rate from the 3.75%-4% range to 4.92% by March 2023 and to the 5%-5.25% range by May, based on futures contract prices and the CME Fedwatch tool. Before the report, the rate was seen topping out at 4.75%-5%.

The Dow Jones Industrial Average DJI fell 256.27 points, or 0.75%, to 34,138.74, the S&P 500 SPX lost 39.05 points, or 0.96%, to 4,037.52 and the Nasdaq Composite IXIC dropped 129.27 points, or 1.13%, to 11,353.18.

The pan-European STOXX 600 index SXXP lost 0.11% and MSCI's gauge of stocks across the globe EURONEXT:IACWI shed 0.84%.

Emerging market stocks EEFS lost 0.48%. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) had closed 0.8% lower, while Japan's Nikkei NI225 lost 1.59%.

The dollar jumped with support from the data and rising Treasury yields.

"Stronger-than-expected hiring can buy the Fed more time to stay aggressive," said Joe Manimbo, senior market analyst at Convera in Washington. "The dollar is catching twin tailwinds as yields rise and risk aversion returns as the jobs report casts doubt on a soft landing."

The dollar index DXY rose 0.592%, with the euro EURUSD down 0.66% to $1.0453 after earlier hitting its highest level against the greenback since late June.

The Japanese yen weakened 0.09% versus the greenback at 135.45 per dollar, while sterling GBPUSD was last trading at $1.2195, down 0.47% on the day.

In Treasuries, benchmark 10-year notes US10Y were up 8.5 basis points to 3.612%, from 3.527% late on Thursday. The 30-year bond (US30YT=RR) was last up 2.2 basis points to yield 3.6548%, from 3.633%. The 2-year note (US2YT=RR) was last was up 11.3 basis points to yield 4.3669%, from 4.254%.

Meanwhile, oil futures were largely steady ahead of a meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on Sunday and an EU ban on Russian crude on Monday.

U.S. crude CL1! rose 0.6% to $81.71 per barrel and Brent BRN1! was at $87.16, up 0.3%.

Gold prices slipped, also reacting to the implications for interest rates from the robust jobs data.

Spot gold GOLD dropped 1.2% to $1,781.42 an ounce. U.S. gold futures (GCc1) fell 0.91% to $1,784.70 an ounce.