Off the back of a breakthrough on the US debt ceiling, there was further evidence of a robust US labour market as May non-farm payrolls came in much stronger than expected. The economy added 339,000 jobs compared with a 195,000 forecast by economists (2 June).

The prior two months figures were also revised upwards. Job gains were strong across the board including more cyclical parts of the economy such as construction and leisure and hospitality.

This might have been expected to be taken negatively by the markets, given the potential implications for interest rates.

After all, the reading suggests higher rates are not yet having a big impact on economic growth. While this is problematic for the Federal Reserve which sees a resilient jobs market as a driver of sticky inflation, investors seem to be placing more weight on increasing odds of a soft-landing scenario.

They can point to rising unemployment which edged up to 3.7% from 3.4% in May and cooler wage inflation which fell to an annual rate of 4.3%.

With nine days to go until the Fed’s next interest rate meeting decision the odds have shifted once again. According to the CME FedWatch Tool investors believe there is an 82% chance the Fed will pause in June, up from just over a third last week.

However, the chance of a quarter percentage point increase in July has increased to 53%, while there is an outside 11% chance of a half a percentage point increase. Meanwhile US 10-year treasury yields have increased to 3.7% from 3.6% before the May jobs report.

Ahead of the latest jobs numbers, it always felt inevitable negotiations between the White House and the Republicans over raising the US debt ceiling would go to the wire.

Treasury secretary Janet Yellen pinned the so-called x-day when the US would run out of money as 1 June (before offering an extension to 5 June) and sure enough that was when a deal was finally agreed after weeks of political wrangling.

The agreement forestalls potential financial Armageddon caused by the world’s largest economy formally defaulting on its debts.

The premium on US five-year sovereign credit default swaps which pay out if a default occurs rose substantially ahead of the agreement, from 0.2% a year ago to 0.66% in the middle of May.

The deal suspends the $31.4 trillion borrowing limit until 2025, setting caps on spending and putting restrictions on fiscal policy until after next year’s election.

Credit rating agency Fitch maintained its negative watch on the US until the Autumn while it considers the ‘coherence and credibility’ of policy making and medium-term debt trajectories.

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