Rates as of 0500 GMT

Market Recap

The commodity currencies remain under pressure as markets grow increasingly riskaverse. US stocks fell sharply Friday, with the SP 500 down 3.6 and the beleaguered NASDAQ off 4.2. The NASDAQ is down 21 so far this year, its worstever start to a year.

US stocks were hit Friday as the  Employment Cost Index ECI, the most comprehensive measure of US labor costs, beat market expectations with a record leap in Q1 data back to 1996. The report corroborated other measures of wage increases, such as the Atlanta Fed wage growth tracker, and raised fears of a wageprice spiral.

Higher wages are also the definitive sign of a tight labor market. Remember that Fed Chair Powell has said the US labor market is extremely, historically tight and volatilely hot. Data like this only confirms that idea and makes it more likely that the Fed will assume it can hike rates further without endangering its commitment to maximum employment.

The result was that the market is now discounting 50 bps hikes for the rest of the year. Thats what would be necessary to get the fed funds rate to 3.03.25 by the December meeting. The market is even pricing in a small chance of a 75bps hike at this meeting 9 or the July meeting 14.

The repriced fed funds rate sent bond yields higher as well. Note though that higher AU, CA, and NZ bond yields didnt do anything to help those currencies. Or at least, they fell despite the higher bond yields.

The repriced fed funds…