Wall Street stocks started the week on an upbeat note, following losses in the previous session as a warming US jobs report added to expectations of a strong Federal Reserve rate hike.
The blue-chip S&P 500 and tech-heavy Nasdaq Composite rose 0.3% and 0.5%, respectively, at midday in New York, cutting off larger gains in early trades. Europe’s Stoxx 600 closed 0.7% higher, while Hong Kong’s Hang Seng index fell 0.8%.
US government debt also increased. The yield on the 10-year Treasury note fell 0.06 percentage points to 2.78% as the price of the benchmark instrument rose. Meanwhile, the 10-year German Bund yield, a proxy for eurozone borrowing costs, fell 0.06 percentage points to just under 0.9%.
The moves come after a report on labor in the world’s largest economy on Friday showed the unemployment rate back to a half-century low, with employers adding 528,000 jobs in July – more than double the 250,000 economists predicted.
These numbers precede the closely watched US consumer price index report due out on Wednesday. Economists polled by Reuters expect key US inflation to rise 0.2% per month from June to July, down from 1.3%. The Core Consumer Price Index (Core CPI), which excludes volatile categories including food and gasoline, is expected to rise 0.5%.
The S&P 500 index fell 0.2% on Friday as traders predicted that stronger-than-expected jobs data would encourage the US central bank to raise interest rates further. But the index is still up 0.4% for the week. With the Nasdaq also up 2.2% for the week, this marked the first time since early April that both indexes have rallied for three consecutive weeks.
Nicholas Colas, co-founder of DataTrek Research, wrote Monday: “Watching stocks hold up after a hot jobs report is truly surprising,” Nicholas Colas, co-founder of DataTrek Research , wrote Monday, warning against taking it too seriously for a stock’s recovery. “In our opinion, the idea that investors have to reset their projected timing of a Fed-induced recession best explains this sudden action.”
In commodities, Brent crude oil recovered from its previous decline, up 1.6% and trading at $96.42 a barrel. That increase comes after the international oil benchmark last week posted its biggest weekly drop since April 2020.
“We are in an environment where central banks have a difficult choice: high inflation or the risk of a recession. Faced with that choice, central banks are likely to choose a recession,” said Bill Papadakis, macro strategist at Lombard Odier.
Central banks have shown a strong willingness to tackle inflation in recent weeks, with the Bank of England, the European Central Bank and the Fed all offering significant rate hikes. regardless of the signs of an economic downturn.
Futures markets indicate that investors are pricing in the possibility of a 0.75 percentage point increase in interest rates for the third time in a row when Fed policymakers meet in September, although analysts say Deutsche Bank analysts note that there will be two more CPI releases before the next Fed meeting.
“Friday monster payroll report. . . finally got the message through it was the story of a dovish Fed pivot. . . especially too soon,” they wrote in a note.
After the dollar rallied on Friday following the jobs report, the greenback fell 0.3% against a basket of six other major currencies.