Theme of the Day: US jobs data reinforced expectations that rates could stay higher for longer

Theme of the Day: US jobs data reinforced expectations that rates could stay higher for longer Stocks, bonds, gold, and industrial metals all moved lower after a stronger-than-expected US jobs report last Friday reinforced expectations that the Fed may need to keep rates higher for longer, at a time when the inflation outlook remains clouded by the ongoing Middle East crisis and elevated energy prices. The S&P 500 fell 2.64%, the Nasdaq dropped 4.77%, the VIX jumped 39.7% to 21.51, pushed the USD close to 100.0 and lifted the US 10-year yield back above 4.5%, highlighting elevated uncertainty ahead of this week's US CPI and PPI reports. Renewed Middle East tensions pushed Brent crude above $97/bbl, adding fresh inflation concerns just as stronger-than-expected US jobs data reinforced expectations that rates could stay higher for longer. Traders are now pricing in one, possibly two, rate increases by the Fed later this year. Bond markets have been warning since Mar that the likely direction for rates is up not down. In theory, higher rates will push up corporate borrowing costs and slow the AI infrastructure build-out, and a higher discount rate means magical mountains of AI profits far in the future are worth less today. Plus, tighter policy rates have tended to precede bull market peaks in the past. At the start of the year, investors were focused on a familiar set of questions. The timing of rate cuts, a leadership transition at the Fed, and a shift toward a more forward-looking, growth-oriented framework were expected to define the outlook. Markets were actively debating how aggressive the Fed might be in easing, with expectations tied in part to Kevin Warsh potentially succeeding Jerome Powell. The US added 172K jobs in May 2026, beating 85K forecasts and following a revised 179K gain. That’s the third positive jobs report in a row, and it also included upward revisions to the initial estimates for Mar and Apr. The labour market is looking more resilient than it did a few months ago, although it’s still too early to say it’s getting hot. Leisure and hospitality, local government, health care, and manufacturing added jobs, while financial activities lost 22K. Revisions raised Mar–Apr employment by 93K, underscoring labour market resilience. The US unemployment rate stayed at 4.3% in May 2026, as expected. Unemployment fell by 66K, employment rose by 149K, labour force participation held at 61.8%, the employment rate edged up to 59.2%, and the U-6 rate dipped to 8.1%. An already weakened precious metals market tumbled after a stronger-than-expected US jobs report reinforced expectations that the Fed may need to hike rates in 2026. Gold’s slide below the 200-day moving average has triggered a fresh wave of technical selling, while the inflationary uncertainty created by the energy shock has kept many long-term investors sidelined. Unlike a financial crisis, where falling yields and a weaker USD typically support gold, a supply-driven inflation shock tends to push yields and the USD higher, creating a more challenging backdrop. For now, a combination of resilient economic growth and rising inflation expectations has created a challenging environment for gold, overshadowing the longer-term supportive themes of central bank buying, fiscal concerns, and reserve diversification.