Stocks at record highs as US data leaves June Fed cut bet intact

Published On : 03/08/2024

By Alden Bentley and Huw Jones

NEW YORK/LONDON (Reuters) -Investors stretched record-breaking stock rallies on Friday and favored U.S. Treasuries to push yields to their lowest in a month after not-too-hot, not-too-cold U.S. jobs data secured the conviction that the Federal Reserve will begin easing by midyear.

The dollar continued to swoon against its currency rivals after the Labor Department said U.S. job growth accelerated in February, even as the unemployment rate jumped and wage gains moderated. The mixed report kept on the table an anticipated interest rate cut in June by the Fed.

“It really kind of solidifies what Chair (Jerome) Powell was saying this week, about the confidence he had in the potential to begin the rate cutting cycle this year. So the market should be pleased with this report,” said Lindsey Bell, chief strategist with 248 Ventures in Charlotte, North Carolina

“The economy’s doing fine. Its slowing in an orderly manner, not too quickly. Its doing what the Fed needs.”

The S&P 500 and the Nasdaq rose to records after the open. The Dow Jones Industrial Average did not quite but still rose 122.27 points, or 0.31%, to 38,912.86. The S&P 500 gained 21.53 points, or 0.42%, to 5,178.89 and the Nasdaq Composite gained 101.28 points, or 0.62%, to 16,374.65.

After the widely anticipated payrolls number, attention will immediately turn to next Tuesday’s U.S. inflation report.

Central bankers from the United States and Europe have this week raised expectations that cuts in borrowing costs will begin in the summer on both sides of the Atlantic, pushing stock indices to new highs again on Friday.

A day after the European Central Bank held rates steady on Thursday, ECB policymaker Francois Villeroy de Galhau said there would be a rate cut in the spring, which he defined as from April until June 21, the date of the central bank’s meeting that month.

Some traders even bet on a May cut by the Fed after U.S. employers added a surprisingly robust 275,000 jobs last month, even while data for prior months were revised down to show fewer job gains.

“The immediate takeaway is the focus on the unemploymentrate going from 3.7% to 3.9%,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.

“More unemployment rate implies that the economy is slowing, which would, in the markets’ view hopefully, necessitate a rate cut sooner rather than later.”

MSCI’s gauge of stocks across the globe rose to its highest level ever and was up 4.24 points, or 0.55%.

In Europe, the STOXX index of 600 companies was slightly firmer after hitting a new lifetime high. The index was 0.14% higher, while Europe’s broad FTSEurofirst 300 index rose 2.30 points, or 0.12%

While central banks on both sides of the Atlantic manage expectations of exactly when they will start lowering borrowing costs, investors pushed up the yen after reports that Japan’s central bank may begin hauling up rates from negative territory as soon as this month.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.21% higher, while Japan’s Nikkei rose 90.23 points, or 0.23%, to 39,688.94.

The dollar headed for its sharpest weekly drop of the year on the growing likelihood of lower borrowing costs.

Against the Japanese yen, the dollar weakened 0.81% to 146.84. The dollar index, a basket comprised of six currencies from major U.S. trade partners, fell 0.24% to 102.51. Its largest component, the euro, was up 0.13% at $1.096.

Hopes of rate cuts put downward pressure on U.S. government bond yields. The yield on benchmark U.S. 10-year notes fell to its lowest since Feb. 2 and was down 1.3 basis points from late Thursday at 4.077%.

The 2-year note yield, which typically moves in step with rate expectations fell to its lowest since Feb. 7, and was 6.6 basis points lower at 4.4505%.

German bund yields were on track to record their biggest weekly fall since mid-December on raised bets of an ECB cut in rates.

Spot gold also logged another record and was up 0.57% at $2,171.39 an ounce. U.S. gold futures gained 1.07% to $2,181.00 an ounce.

U.S. crude lost 0.51% to $78.53 a barrel and Brent fell to $82.64 per barrel, down 0.39% on the day.

In cryptocurrencies, bitcoin gained 2.04% to $68,712.00. Ethereum rose 3.03% at $3992.1.

(Reporting by Alden Bentley and Huw Jones; Editing by Jacqueline Wong, Alex Richardson, Christina Fincher and Jonathan Oatis)

Jessica Weisman-Pitts

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