NEW YORK, Jan 6 (Reuters) – Wall Street sparked a global rally in stocks on Friday after a key U.S. jobs report showed wage growth slowed in December, fueling investor bets that inflation is easing and the Federal Reserve may not need to be as aggressive. Some were afraid.
Data on Friday showed the U.S. economy added jobs at a solid clip in December, pushing the unemployment rate to a pre-pandemic 3.5% as the labor market tightened, while average hourly earnings rose 4.6% in December from a year earlier. down from 4.8% in November.
Although the data still showed a robust labor market, investors saw the report as a sign that a “soft landing” for the US economy was possible amid rising rates and focused on a cooling in wage inflation, an indicator the Fed also monitors. While 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) also rose 1.6% and the Nasdaq Composite (.IXIC) rose 1.7%.
Still, some analysts cautioned that such enthusiasm could be misplaced, and Friday’s data argued that policy tightening is far from over.
“Everything else about this points to a very resilient labor market, which doesn’t bode well for a small rate hike,” said Randy Frederick, managing director of trading and products at Charles Schwab in Austin, Texas.
“The odds of us getting a half point (rate hike) on Feb. 1 are relatively low, but those odds are increasing every day based on all this data.”
But investors weren’t paying attention, especially after a separate report showed in December that activity in the US services industry contracted for the first time in more than 2-1/2 years.
The dollar index, which measures the greenback against six counterparts including the yen and the euro, fell 1.1% to 104.00 as investors placed bets that the Fed could raise interest rates by 50 basis points at its February policy meeting.
US two-year Treasury yields, which track interest rate expectations, fell to 4.2744% after rising to a two-month high of 4.497% overnight. The 10-year yield retreated sharply to 3.5820%, up 3.784% in New York on Thursday.
The buoyancy on Wall Street spilled across the Atlantic, pushing Europe’s broadest Stoxx 600 equity index (.STOXX) 1.2% higher. Friday’s data showed a sharp drop in eurozone inflation. Germany’s Xetra Dax (.GDAXI) also jumped 1.2%.
A softer dollar boosted the euro, which rose 1% to $1.06300.
Dollar weakness has also boosted oil prices. Brent crude rose 0.5% to $79.03 a barrel, while US West Texas Intermediate crude futures rose 0.9% to $74.30.
Bullion also gained, with spot gold jumping 1.7% to $1,864.25 an ounce.
A Reuters poll of economists showed the nonfarm payrolls report showed 200,000 jobs were created in December, easing from November’s 263,000 pace but double the level the Fed considers sustainable.
“While the softening trend is clear and the pace of hiring is slowing significantly, we are far from what can be described as a weakening of demand-reducing labor and wage conditions,” Rick Ryder said. Chief Investment Officer of Global Fixed Income at BlackRock.
Fed policymakers are more cautious in judging Friday’s data.
Atlanta Fed President Rafael Bostic said he expects the policy rate to reach a range of just above 5.00% this year and remain there “well” into 2024.
This is in stark contrast to traders’ expectations for the policy rate, now in the 4.25%-4.50% range, topping out at 4.75%-5.00% and then for the Fed to start cutting borrowing costs in the second half of this year. .
Reporting by Naomi Rovnik and Kevin Buckland; Edited by Barbara Lewis, Chizu Nomiyama, Josie Cao, and Alexander Smith
Our criteria: Thomson Reuters Trust Principles.
