The set of labour market data effectively ended all hope of Fed cuts, with the market pricing in a full-cut by end-2026. NFP came in at 172k, beating consensus (88k) by a large margin. Moreover, there was 93k in net payroll revisions over the preceding two months. Amidst steady unemployment, labour force participation and still-elevated wage growth. The key takeaway is that the jobs market is doing well. Against a backdrop of high inflation (due to energy prices) and no clear timeline for respite (no US-Iran deal announced yet), macro indicators are pointing towards an overheating US economy. This is unlikely to change even as new Fed Chair Warsh takes the helm at the upcoming FOMC meeting. 
A strong labour market is unwelcomed by market participants. As nominal and real yields rise, this poses headwinds for commodities in general and some of this has been reflected in weak precious metals and crypto prices. The AI-driven global stock rally was also displaying some signs of shakiness before the payroll release. Higher rates simply exacerbated the selloff. Overall, there is nowhere to hide as equities, bonds and commodities sold off in tandem.
We think that investors will be focused on the possibility of a hawkish Fed for the immediate term. From a pricing perspective, there may be a push for up to three hikes to recoup the cuts that took place in 2025. This would imply that 2Y USTs would look attractive perhaps when yields get closer to 4.2%. From a level perspective, 10Y yields have pushed back above 4.5%, into the overheating zone. Curve wise, there will likely be immediate term flattening pressures as we think that it will be increasingly difficult for the Fed to justify being dovish. This week’s US CPI release (10 June) would be another data point to watch and we suspect that the bias for investors may be to frontload hike pricing. 
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