Global stocks retreated from all-time highs on Friday and US government debt yields jumped after unexpectedly strong US jobs data doused hopes the Federal Reserve would soon follow the euro zone and Canada in cutting interest rates.
The world’s largest economy added 272,000 new jobs last month, well above the 185,000 new hires predicted by economists and derailing an investor consensus that the job market had slackened just enough to push consumer prices lower.
The figures appear to indicate that business activity is healthy and not affected too much by the high interest rates that the Fed says are necessary to beat back stubborn inflation.
“It’s really quite difficult for the Fed to be anywhere near a rate cut,” said Padhraic Garvey, regional head of research at ING in New York. “There’s no urgency for the Fed to cut if the labour market is firm.”
Diminished hopes for an imminent Fed move weighed on the MSCI’s world share index, which fell 0.2% after touching a record level on Thursday. Wall Street’s performance was likewise lacklustre. The S&P 500 was flat, the Dow Jones Industrial Average edged up 0.2%, and the Nasdaq Composite lost 0.2% in early trade.
The benchmark 10-year US Treasury yield, a benchmark for borrowing rates globally, rose 14 basis points after the jobs report to 4.42%.
The two-year yield, which tracks interest rate expectations, climbed 13 basis points to 4.85%, following six straight days of declines until Thursday. Bond yields rise as prices fall.
Money market pricing just after the payrolls data was released implied that traders now believe the Fed will only start to cut rates from their 23-year high range of 5.25% to 5.5% in November.
US interest rate futures also lowered the chances of the Fed cutting rates by 25 basis points in September to 56%, down from around 70% on Thursday, according to the LSEG Fedwatch.
A September move had been strongly expected earlier in the day, particularly after the European Central Bank made a widely expected decision to cut its deposit rate from a record 4% to 3.75% on Thursday.
“This is a strong report, and it suggests that there are no signs of any cracks in the labour market,” Spartan Capital Securities chief economist Peter Cardillo said.
“It’s a plus for economy and a plus for corporate earnings but it’s a negative in terms of the prospects of a rate cut perhaps as early as September.”
The Bank of Canada on Wednesday became the first G7 nation to trim its key policy rate, following cuts by Sweden’s Riksbank and the Swiss National Bank.
