Wall Street stocks kicked off the week on an upbeat note after losses in the previous session, when a hot US jobs report added to expectations of aggressive interest rate rises by the Federal Reserve.
The blue-chip S&P 500 and the tech-heavy Nasdaq Composite both rose 0.6 per cent at the open on Monday. In Europe, the Stoxx 600 gained 1.1 per cent. Hong Kong’s Hang Seng index closed down 0.8 per cent.
US government debt also made gains, with the yield on the 10-year Treasury note falling 0.04 percentage points to 2.79 per cent, as the price of the benchmark instrument increased. The yield on the 10-year German Bund, a proxy for eurozone borrowing costs, fell 0.06 percentage points to 0.89 per cent.
Those moves came after a labour report for the world’s largest economy on Friday showed the unemployment rate returning to a half-century low, with employers adding 528,000 jobs in July — more than double the 250,000 anticipated by economists.
That report preceded a closely watched consumer price index report due on Wednesday. Economists polled by Reuters expect US headline inflation to have increased 0.2 per cent month over month from June to July, down from 1.3 per cent. Core CPI, which strips out volatile categories including food and petrol, is expected to have risen 0.5 per cent.
The S&P 500 had dipped 0.2 per cent on Friday as traders anticipated that the stronger than expected jobs data would encourage the US central bank to lift interest rates further but they have rebounded since. But the index still gained 0.4 per cent for the week. With the tech-heavy Nasdaq Composite also up 2.2 per cent for the week, this marked the first time since the start of April that both indices made three consecutive weekly gains.
“Seeing stocks hold firm after a hot jobs report is genuinely surprising,” wrote Nicholas Colas, co-founder of DataTrek Research, who cautioned against attributing too much importance to stocks’ resilience. “To our thinking, the idea that investors must reset their expected timing of a Fed-induced recession best explains this unexpected action.”
In commodities, Brent crude lost 0.2 per cent to $94.73 a barrel. That decline came after the international oil benchmark last week posted its biggest weekly drop since April 2020.
“We are in an environment where central bankers have a tough choice: high inflation or the risk of recession. Faced with that choice, central bankers are likely to choose recession,” said Bill Papadakis, a macro strategist at Lombard Odier.
Central banks have in recent weeks shown their willingness to tackle inflation robustly, with the Bank of England, European Central Bank and Fed all introducing sizeable rate rises despite signs of an economic slowdown.
Futures markets indicate that investors are pricing in the possibility of a third consecutive 0.75 percentage point rate rise when Fed policymakers meet in September, although Deutsche Bank analysts noted that there would be two further CPI releases before the Fed’s next meeting.
“The monster payrolls report on Friday . . . finally got the message through that the narrative of a dovish Fed pivot . . . was exceptionally premature,” they wrote in a note.
After the dollar made gains on Friday following the jobs report, the greenback slipped 0.3 per cent against a basket of six other major currencies.