NEW YORK, May 6 — A global gauge of stocks rallied and US Treasuries and gold sold off yesterday as strong US jobs data brightened the economic outlook and traders pared expectations of Federal Reserve easing after a long spate of rate hikes.
The non-farms payroll report showed US employers added 253,000 new jobs in April, up from 165,000 in March and exceeding expectations for 180,000.
US Treasury yields rose after the report while the dollar was down very slightly against a basket of major currencies.
Oil prices jumped on signs of economic strength, but registered their third weekly decline in a row. Shares in US banks also erased some losses after a rough week following the collapse of a third major bank.
Since Fed Chair Jerome Powell signaled that the central bank could pause hikes traders have been betting this would happen at the June meeting with some even calling for rate cuts in July, according to CME Group’s FedWatch tool. After yesterday’s data, the probability for a July cut declined.
But still yesterday’s trading suggested a focus on signs of economic strength rather than on the prospects for tighter policy, which often come with stronger than expected data.
“The pause button has likely been pressed and now it’s about the state of the US economy and what we saw today suggests it’s in a better position that previously expected,” said Kristina Hooper, chief global market strategist at Invesco, New York. “The caveats are that one data point does not a picture paint and, to a large extent, employment is a lagging indicator for the state of the economy.”
But while decent growth may not lead to more tightening in the short run Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in Charlotte, North Carolina, disagrees with the market’s “Goldilocks scenario” where growth slows without a hard recession and the Fed can ease policy quickly.
“If the Fed is cutting rates aggressively in the back half of the year, something has gone very wrong economically,” he said adding that, for now, the market has a short term focus.
MSCI’s gauge of stocks across the globe was gaining 1.48 per cent and on track for its biggest one-day percentage gain since January 6. However, for the week it still showed a small decline.
The Dow Jones Industrial Average rose 546.64 points, or 1.65 per cent, to 33,674.38, the S&P 500 gained 75.03 points, or 1.85 per cent, to 4,136.25 and the Nasdaq Composite added 269.02 points, or 2.25 per cent, to 12,235.41.
Under the hood, oil’s rebound helped boost the energy equity index. US crude settled up 4.05 per cent at US$71.34 per barrel and Brent ended at US$75.30, up 3.86 per cent.
The biggest boost from a single stock for all three major US indexes was from technology heavyweight Apple Inc which soared after its quarterly report impressed investors.
Investors also paused their exit from US banks pushing the KBW regional bank index .KRXup 4.7 per cent. However the regional index was still down almost 8 per cent for the week on sharp declines in the previous four sessions after the weekend collapse of First Republic Bank.
In currencies, the dollar index fell 0.059 per cent, with the euro up 0.05 per cent to US$1.1016. The Japanese yen weakened 0.39 per cent versus the greenback at 134.84 per dollar, while sterling was last trading at US$1.2633, up 0.49 per cent on the day.
In Treasuries, benchmark 10-year notes were up 7.9 basis points to 3.431 per cent, from 3.352 per cent late on Thursday. The 30-year bond US30YT=RR was last up 2.4 basis points to yield 3.7464 per cent. The 2-year note US2YT=RR was last was up 18.7 basis points to yield 3.9139 per cent.
After getting close to a record high in the previous session, gold beat a fast retreat after the payrolls data tempered expectations for Fed rate cuts.
Spot gold dropped 1.7 per cent to US$2,017.03 an ounce. US gold futures fell 1.76 per cent to US$2,017.40 an ounce. — Reuters