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Stocks mostly rise after US jobs data

Stock markets mostly advanced on Friday as traders digested key US jobs data and after news of falling inflation in the eurozone.

Global equities have enjoyed a largely solid start to the new year after a dismal 2022 marked by concerns about the war in Ukraine and central bank rate hikes aimed at taming soaring prices.

Wall Street rallied amid hopes inflation may continue to cool and the Federal Reserve may ease up on its hikes to interest rates following some mixed readings on the US economy.

The S&P 500 was 1.6 per cent higher following a shaky morning of trading, where an early pop of 1.2 per cent disappeared almost entirely within minutes. It’s on track to more than erase all its losses from earlier in the week and mark its first winning week in the last five.

The Dow Jones Industrial Average was up 515 points, or 1.6 per cent, at 33,444, as of 11 a.m. Eastern time, and the Nasdaq composite was 1.4 per cent higher.

European stocks edged up earlier in the day on news of slowing EU inflation. In London, the FTSE 100 gained 0.5 per cent. In Frankfurt, the DAX benchmark rose 0.1 per cent. The EURO STOXX 50 gained 0.4 per cent.

In Asia on Friday, Hong Kong's stock market dipped after three days of gains, while Singapore, Mumbai, Wellington and Manila were also in the red. Shanghai edged up, with help from reports saying China was considering relaxing strict rules on borrowing for property developers. Tokyo, Sydney, Seoul, Taipei, Bangkok and Jakarta also rose.

Markets worldwide got an initial jolt from the US jobs report. On the upside for them, it showed workers’ wage gains are slowing, which could mean easing pressure on the nation’s high inflation. On the downside, it also showed hiring across the job market may still be too strong for the Fed’s liking, even after its fusillade of rate hikes last year.

Analysts warned trading may remain turbulent in the coming hours and weeks as investors keep trying to handicap whether the economy can avoid a recession. Much of the trading is based entirely on expectations for what the Fed will do with rates: High rates slow the economy by design, hoping to grind down inflation, while also threatening to cause a recession and dragging down prices for all kinds of investments.

Perhaps the clearest action for investors was in the bond market, where the yield on the two-year Treasury dropped to 4.26 per cent from 4.48 per cent just before the release of the data on the U.S. jobs market.

That yield tends to track expectations for Fed action, and more investors are betting the central bank will dial down the size of its next rate hike following Friday’s data.

Key for them was the reading showing wages for workers across the country rose 4.6 per cent in December from a year earlier. It’s the smallest raise for workers since two summers ago, and it came despite economists’ expectations for an acceleration.

While weaker raises hurt workers, particularly when they’re still not keeping up with inflation, economists say they could keep the economy out of a vicious cycle where big gains in pay push employers to raise prices for their own products, leading to even higher inflation. It’s something the Federal Reserve has talked about preventing, part of the reason why it’s been hiking interest rates at economy-shaking speed.

“As long as wage gains are coasting to a sustainable altitude, the Fed might continue to throttle back its rate hikes,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

A separate report also showed that activity in US services industries surprisingly contracted last month, the first time that’s happened since 2020. Analysts said that’s likely due in part to the rate hikes already pushed through by the Fed, and the weakness could also reduce pressure on the nation’s inflation.

The Fed has pulled its key overnight rate up to a range of 4.25 per cent to 4.50 per cent after it began last year at virtually zero.

With inflation showing some signs of cooling in recent months, the Fed last month stepped down the size of its rate increase to 0.50 percentage points from four straight hikes of 0.75 points. Traders are largely betting on the Fed to move to the more traditional hike of 0.25 points at its meeting next month.

Past rate hikes have already meant big pain for areas of the economy that do best when rates are low, such as housing.

In coming weeks, companies across industries will show how widespread the damage is when they report how much profit they made during the last three months of 2022.

If companies across the S&P 500 report a drop in overall earnings per share, as some analysts suspect, it would be the first decline since the summer of 2020.

The dollar fell Friday versus the pound on news that US wage growth slowed in December, dimming expectations of more aggressive interest rate hikes from the Federal Reserve, dealers said.

At about 1600 GMT, sterling climbed 1.2 per cent to $1.2043 following publication of the data.