- Stocks rallied as US jobs data quelled inflation fears.
- Investors are betting that the Fed doesn’t need to be as tough.
- Treasury yields fell again and the dollar weakened.
New York, Jan 6 (Reuters) – Wall Street sparked a global rally in stocks on Friday after a key U.S. jobs report showed slow wage growth in December, with investors betting on easing inflation and the need for the Federal Reserve to tighten. Some are afraid.
Friday’s data showed the U.S. economy added jobs in a solid quarter in December, pushing the unemployment rate back to a pre-pandemic low of 3.5%, while average hourly earnings rose 4.6% in December amid a tight labor market. It fell 4.8 percent in November.
The data showed a still-strong labor market, but investors saw the report as a sign of a “soft landing” for the U.S. economy amid rising rates, an indicator the Fed is also watching, focusing on a freeze in wage inflation. When addressing price pressures.
Market cheer over the data helped the MSCI All-World index (.MIWD00000PUS) rise 1.6%. on Wall Street; The S&P 500 (.SPX) jumped 1.6%, the Dow Jones Industrial Average (.DJI) was also up 1.6% and the Nasdaq Composite (.IXIC) was up 1.7%.
Still, Some analysts have warned that such grandeur may be misplaced, and Friday’s data argued that policy tightening is far from over.
“Everything else about this case shows a very resilient labor market that doesn’t bode well for a small rate hike,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas.
“Available rates are relatively low because we can get a half point (rate hike) on Feb. 1, but based on all these numbers, those rates are going up every day.”
But investors were unconcerned, especially after a separate report in December showed activity in the U.S. service industry rose for the first time in more than 2-1/2 years.
The dollar index, which measures the greenback’s return against six peers including the yen and euro, fell 1.1% to 104.00 as investors pushed back bets that the Fed will raise interest rates by 50 basis points at its February policy meeting.
The U.S. two-year Treasury yield, which tracks interest rate expectations, fell to 4.2744% after hitting a more than two-month high of 4.497% overnight. The 10-year yield, which rose to 3.784% in New York on Thursday, also retreated sharply to 3.5820%.
Movement on Wall Street crossed the Atlantic, sending Europe’s broad Stoxx 600 share index (.STOXX) up 1.2%. Data on Friday showed a sharp drop in euro zone inflation. Germany’s Xetra Dax (.GDAXI) also jumped 1.2%.
A weaker dollar boosted the euro; It rose 1% to $1.06300.
A weaker dollar also boosted oil prices. Brent crude rose 0.5% to $79.03 a barrel, while U.S. West Texas Intermediate crude futures rose 0.9% to $74.30.
Bullion also benefited, with gold jumping 1.7% to $1,864.25.
A Reuters poll of economists showed nonfarm payrolls report added 200,000 jobs in December, slowing from November’s pace of 263,000, but still about twice the level the Fed considers sustainable.
“The softening trend is clear, and while the pace of hiring has slowed significantly, it’s equally clear that we are far from easing demand for labor and wage conditions,” Rick Rieder said. BlackRock’s chief investment officer of global fixed income.
Fed policymakers also decided more cautiously on Friday’s data.
Atlanta Fed President Raphael Bostic said he expects the policy rate to remain above 5.00% this year and remain there through 2024.
That’s in sharp contrast to traders’ expectations for policy rates, now in the 4.25%-4.50% range, at 4.75%-5.00%, for the Fed to start cutting borrowing costs in the second half of the year. .
Reporting by Naomi Rovnick and Kevin Buckland; Barbara Lewis; Chizu Nomiyama, Edited by Josie Kao and Alexander Smith.
Our Standards: Thomson Reuters Trust Principles.