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Stocks climb, dollar slips as soft U.S. jobs data soothe rate hike fears

Economy40 minutes ago (Jun 04, 2021 09:30AM ET)

(C) Reuters. FILE PHOTO: A man wearing a protective face mask walks past a screen displaying a graph showing recent Nikkei share average movements outside a brokerage, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan December 30, 2020. REUTERS/Issei K

By Lawrence White and Kevin Buckland

LONDON (Reuters) – Stocks and gold rallied while the dollar fell on Friday, as a weaker-than-expected U.S. jobs report eased concerns that a strong recovery in the world’s biggest economy could prompt the Federal Reserve to shut off the stimulus taps sooner.

The crucial U.S. nonfarm payrolls data released at 1230 GMT showed only 559,000 jobs created in May, below the 650,000 expected from a Reuters poll of analysts

The pan-European STOXX 600 index was up 0.1% by 1239 GMT, trading just below its record high touched earlier this week, and contrasting with an earlier 0.3% fall in MSCI’s broadest index of Asia-Pacific shares outside Japan.

A stronger-than-expected reading would have heightened worries that the robust economic recovery could push the Fed to contemplate paring back its bond buying and raising interest rates.

“It’s still a strong number. The way I see it is it’s lacking a certain wow factor that the market was expecting, and that can help keep rates a bit lower here and the curve a bit steeper,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.

Market whispers had been for a stronger number, he added, that would somewhat counterintuitively have driven stocks down on fears the Fed would tighten policy earlier than expected.

The dollar index fell 0.23% immediately after the data release, down from a multi-week high hit earlier on Friday.

U.S. stock futures extended gains, with S&P 500 e-minis up 0.26% following a 0.4% loss for the index overnight.

The 10-year Treasury yield held at 1.6355%, after advancing nearly four full basis points overnight.

Airlines meanwhile suffered, with British Airways-owner IAG (LON:ICAG), Wizz Air and easyJet (LON:EZJ) slipping between 1% and 2% after Britain added seven countries, including Egypt and Sri Lanka, to its “red list” of destinations that require hotel quarantine on return to England.

TAPER TALK

While Fed officials have consistently said they expect current inflationary pressures to be transitory and for ultra-easy monetary policy to stay in place for some time, they are also increasingly touting the need to at least start talking about a tapering of stimulus.

Investors have been carefully parsing the economic data to gauge whether inflation could prove sticky enough to force the Fed’s hand on tapering.

Last month, much-lower-than-expected nonfarm payrolls numbers knocked back those expectations, weakening Treasury yields and the dollar, and the pattern repeated on Friday.

Copper prices rebounded as investors scooped up material at lower prices. Three-month copper on the London Metal Exchange gained 0.8% to $9,870 a tonne, having tumbled as much as 3.8% in the previous session.

Gold rose 0.6% after a 2% tumble on Thursday, its biggest since February, trading at around $1,883 per ounce by 1252 GMT.

Oil rose towards $72 a barrel, trading close to a two-year high as OPEC+ supply discipline and recovering demand countered concerns about patchy COVID-19 vaccination rollouts around the globe.

Brent futures rose 34 cents to $71.64 a barrel, after reaching the highest since May 2019 in Thursday’s session. U.S. WTI added 40 cents to $69.21 a barrel, just below $69.40 a day earlier, the strongest since October 2018.

Stocks climb, dollar slips as soft U.S. jobs data soothe rate hike fears

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