Strong US jobs data showing that the world’s top economy is in rude health drove up stocks yesterday, with the S&P 500 index in the US hitting a new record high.
Meanwhile, the London market rose above 6,800 for the first time in 14 months, as European equities built on earlier gains seen after the Bank of England announced a post-Brexit interest rate cut and surprise stimulus.
In London, the FTSE 100 up 0.8% at 6,793.47 points; Frankfurt — DAX 30 up 1.4% at 10,367.21 points and Paris — CAC 40 up 1.5% at 4,410.55 points at the close yesterday. Briefing.com analyst Patrick O’Hare hailed the US employment report as showing “strong and relatively broad-based job growth, higher wage growth and an increase in the average workweek.”
The US economy generated 255,000 new jobs in July, largely surpassing analyst expectations.
“The US jobs market is having a nice summer,” commented Harm Bandholz, an economist at UniCredit.
Traders had been looking for reassurance on the state of the American economy after June’s blockbuster jobs report fanned talk of a rate hike this year, before below-forecast second-quarter economic growth figures threw cold water on the idea.
The dollar also strengthened amid renewed expectations that the US central bank, the Fed, will increase rates this year in the wake of yesterday’s strong jobs report.
“Rising labour costs and further improvements in the labour market unequivocally suggest that a December rate hike remains in play,” said Bandholz at UniCredit, while Connor Campbell at Spreadex said the Fed may act as early as September if yesterday’s “blockbuster” jobs report is matched next month.
Stockmarkets do not usually cheer an upcoming tightening of credit, but Campbell suggested that this time they were pleased that Fed’s dithering over interest rates may be coming to an end.
“It seems that currently investors are a bigger fan of ostensible Fed clarity than they are of avoiding an increase in interest rates,” he said.
Asian investors earlier pressed on with Thursday’s rally after the Bank of England cut borrowing costs for the first time in seven years, to 0.25%.
Policymakers also unveiled an emergency package worth up to £170bn ($223bn), including £60bn for more bond-buying, or quantitative easing (QE).
The BoE measures came as relief to global markets after a string of recent disappointing announcements by world central banks from Tokyo to Europe that fell well short of expectations and dampened buying sentiment.
The British central bank also expects to trim rates again later this year to just above zero and could also expand the stimulus.
The news sent sterling plunging, but stocks rallied, and the positive sentiment flowed through to Asia, where Hong Kong closed up 1.4%, while Sydney added 0.4% and Seoul gained 0.9%, Wellington put on 0.1% and Taipei 0.8%.
Tokyo stocks pared early gains to end flat as an initial rally in the dollar against the yen ran out of steam, while Shanghai retreated 0.2% in value.