August 6, 2021

By Lawrence Delevingne

BOSTON (Reuters) -A positive jobs report spurred Wall Street to push some stocks and Treasuries higher on Friday, but investor optimism was tempered by looming inflation, a potential decline in Federal Reserve stimulus and the coronavirus’ Delta variant.

Nonfarm payrolls increased by 943,000 jobs in July after rising 938,000 in June, the Labor Department said in its closely watched employment report on Friday, pushing unemployment down to 5.4% and suggesting the economy maintained its strong momentum. Economists polled by Reuters had forecast payrolls increasing by 870,000 jobs.

“It’s a number that’s hard to say anything but positive things about,” Sameer Samana, a market strategist at Wells Fargo Investment Institute in St. Louis, said in an interview. “Especially with the Delta variant kind of perking up, it would be much more confidence-building for the market to have a very strong economy.”

Still, stock gains were muted. The Dow Jones Industrial Average rose 133.28 points, or 0.38%, to 35,197.53, the S&P 500 gained 3.85 points, or 0.09%, to 4,432.95 and the Nasdaq Composite dropped 81.95 points, or 0.55%, to 14,813.16.

Peter Cardillo, an economist with Spartan Capital Securities in New York, said the jobs number was “solid” but that it indicates “inflation has more staying power and is not necessarily temporary.”

U.S. Treasury yields rose on Friday after the jobs report came in line with goals the Federal Reserve has set to start unwinding stimulus.

Benchmark 10-year Treasury yields rose to 1.2969%, approaching a week high after their U.S. close at 1.217% on Thursday.

“The strength of hiring calls into question the rally in treasuries that took place over the last few months,” Mike Bell, a market strategist at J.P.Morgan Asset Management, said in an email. “We expect this to be the start of a sustained move higher in treasury yields over the rest of the year.”

Investors will now watch when and how quickly the Federal Reserve could reduce their support for the U.S. economy. Senior officials suggested this week that an interest rate increase could come in 2023; a meeting of Fed policymakers in Jackson Hole, Wyoming, in late August is seen as key to the decision making.

“With 5.7 million fewer Americans employed than before the pandemic, it’s too early to contemplate tightening monetary policy or to pull back on the reins of fiscal policy,” Ron Temple, head of U.S. equities at Lazard Asset Management, said in an email following the jobs report on Friday.

“Instead, policymakers should fix their gaze on a full recovery and on raising US economic productivity for years to come through significant infrastructure investments.”

Oil prices declined again on Friday, set for their biggest weekly loss since October after falls earlier in the week triggered by rising COVID-19 cases and a surprise build in U.S. crude stockpiles. [O/R]

U.S. crude fell 0.71% to $68.60 per barrel and Brent was at $71.02, down 0.38% on the day.

The dollar crept higher on Friday, lifted by the positive jobs report, which bolstered the case for faster U.S. policy tightening. The dollar index was last up about 0.516, or 0.560%, in midday trading.

The stronger dollar and potential for higher yields hurt gold. Spot prices dropped 2.4% to $1,760.88 an ounce and U.S. gold futures fell 2.41% to $1,761.60 an ounce.

Bitcoin was up around 2.3% at $41,789, its highest price since May. Ether, the world’s second-largest cryptocurrency, fell about 2% as of Friday morning, a day after a major software upgrade to its underlying blockchain.

(Reporting by Lawrence Delevingne in BostonAdditional reporting by Caroline Valetkevitch, Medha Singh and Stephen CulpEditing by Jonathan Oatis and Matthew Lewis)