US job data cheers market, likely reinforces Federal Reserve Board grounds on rate rise

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Optimism was rippling through the US market on Friday upon the release of a stronger than expected job data, with Dow registering its eighth straight record high and dollar gaining grounds.

The total nonfarm payroll employment increased by 209,000 in July, beating market expectation of 180,000, according to data released by the Labor Department on Friday.

The Dow Jones Industrial Average closed up 66.71 points, or 0.30%, to 22,092.81, extending the benchmark’s rising streak since the beginning of 2017 which had seen the index climbed above 22,000 on Wednesday on the strength of strong earnings.

The dollar index, which measures the greenback against six major peers, surged 0.78% at 93.566 in late trading.

A 'Dow 22,000' themed hat sits on a desk on the floor of the New York Stock Exchange (NYSE) ahead of the closing bell, August 2, 2017 in New York City. The Dow closed above 22,000 for the first time. (Photo by Drew Angerer/Getty Images)

Investor’s increasing appetite for risky bets and the anticipation of another rate hike has drained the momentum away from treasury bonds and gold. The yield of the US’s 10-year Treasury had risen while gold futures contracted on Friday. The two are traditional harbors for averting market turbulence.

A stable labor market, together with steady average hourly pay increase, could further cement the Federal Reserve’s (Fed's) position to further slim its balance sheet, which currently remains at 4.5-trillion dollars.

In its July meeting, the Fed signaled that it would begin raise interest rate as early as September, which could be, as market widely expects, followed by a further hike in December.

Federal Reserve Board Chairwoman Janet Yellen testifies before the House Financial Committee about the State of the economy on July 12, 2017 in Washington.

Despite Dow’s strong reaction to the employment news, calmed tone prevailed in the job data’s affect on the Fed’s future decision.

"This report should leave the Fed comfortable with B/S (balance sheet) normalization in Sept and we think leaves a hike in Dec on the table," Bank of America Merrill Lynch said in its US economic watch.

“All the key data were stronger than expected, but none were really all that strong," said Chris Low, chief economist of FTN Financial.

"Since the next likely rate decision is in December anyway, this report is not likely to have much impact on the Fed, especially because there is absolutely nothing here to suggest delaying the start of balance sheet reduction, which is most likely the FOMC's (Federal Open Market Committee) next move," Low added.