Global equities rise after US job data reduces rate predictions

Oil prices were also supported by anticipation for lower rates. U.S. West Texas Intermediate crude futures increased by 1.4% to $74.71 and Brent crude increased by 1.2% to $79.61 per barrel.

As investors cheered a crucial U.S. jobs report that revealed pay growth slowed in December, betting that inflation is easing and the Federal Reserve need not be as aggressive as some anticipated, world equities rose on Friday, headed by Wall Street.

MSCI All-World index increased by 1.3%. The Dow Jones Industrial Average increased 1.6%, the Nasdaq Composite increased 1.3%, and the S&P 500.SPX rose 1.5% on Wall Street.

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The labour market is still tight, and data released early on Friday showed the U.S. economy generated jobs at a strong clip in December, sending the unemployment rate down to a pre-pandemic low of 3.5%. Average hourly earnings increased by 4.6% from a year earlier in December, down from 4.8% in November.

But given that the statistics indicated a still-robust labour market, some analysts advised investors against wagers that the most recent jobs report may influence a hawkish Fed.

The jobs report, according to Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas, “shows a very, very strong labour market which doesn’t bode well for a lesser rate hike.”

“The odds have been relatively low that we would get a half a point (of rate hike) on Feb. 1, but those odds are going up every day based on all this data.”

Investors bet the Fed might not need to hike interest rates by an aggressive 50 basis points at its next policy meeting in February, focusing instead on the positive aspects of the jobs report.

Tampered rate expectations caused the dollar index, which compares the dollar to six other currencies, including the yen and the euro, to decline 0.8% to 104.29.

U.S. two-year Treasury yields, which gauge expectations for interest rates, dropped to 4.2682% before rising to a more than two-month high of 4.497% overnight. They then dropped to 4.4571% during morning trade in Europe. The 10-year yield, which on Thursday reached a high of 3.784% in New York, also declined significantly to 3.5728%.

The optimism from Wall Street spread to Europe, driving the broad Stoxx 600 market index up 1%. Data from Friday indicated a significant decline in eurozone inflation. Xetra Dax in Germany increased by 0.9%. The dollar’s decline helped the euro, which increased by 0.9% to $1.06100.

Oil prices were also supported by anticipation for lower rates. U.S. West Texas Intermediate crude futures increased by 1.4% to $74.71 and Brent crude increased by 1.2% to $79.61 per barrel. [O/R]

According to a Reuters survey of experts, the non-farm payrolls report due out on Friday is predicted to show that 200,000 jobs were added in December, down from November’s 263,000-job gain but still around twice the Fed’s sustainable level.