Sunday, December 22, 2024

Stock markets rise on US jobs data, looming eurozone rate cut

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A cooling US labour market is raising hopes of a Federal Reserve interest-rate cut. (MARIO TAMA)

US and European stock markets climbed Wednesday on the eve of an expected European Central Bank interest-rate cut, and as US jobs data fuelled hopes the Federal Reserve will follow suit in the coming months.

New York’s broad-based S&P 500, the tech-heavy Nasdaq and the Dow were all up at around midday deals after data showed job gains in the US private sector slowed again in May.

Employers added 152,000 jobs last month, down from a revised 188,000 figure in April and less than analysts anticipated, due to a steep decline in manufacturing, according to payroll firm ADP.

Investors have been concerned that the US central bank will keep interest rates higher for longer, but a softer labour market could give the Fed confidence to pivot to cuts sooner than feared.

“If you have fewer people working, that could imply an increase in the unemployment rate,” Sam Stovall, chief investment strategist at financial research firm CFRA, told AFP.

“That would bring down inflation and increase the likelihood that the Fed will be able to start cutting rates later this year,” he added. “So bad is good.”

The ADP figures come ahead of closely watched non-farm payrolls figures due Friday, which will provide a much clearer snapshot for the US central bank ahead of its policy decision next week.

Kathleen Brooks, research director at trading platform XTB, said “bad economic news” raises the chance of a Fed rate cut in September.

“The slowdown in the economy is no bad thing at this stage: it is boosting the prospect of rate cuts but it is not signaling a recession, rather it is signaling a soft landing is coming into view,” Brooks said.

While the Fed has yet to ease its monetary policy, the Canadian central bank decided Wednesday to slash its own rate to 4.75 percent.

In European markets, London, Paris and Frankfurt closed higher, with the ECB forecast to start cutting eurozone borrowing costs from historic highs on Thursday.

The ECB decision “is shaping up to be the main event this week,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.

“We think that a first 25-basis-point cut remains essentially guaranteed,” he added.

But sticky inflation means the move is unlikely to kickstart a rapidly easing cycle by the ECB.

“We expect the ECB to maintain its data-dependent approach and await confirmation of the downtrend in inflation before committing to additional cuts. This could lead to a relatively muted response in financial markets,” Ryan said.

Asian indices closed lower as optimism of a Fed rate cut was eclipsed by resurfacing fears over the health of the US economy.

Concerns of persistent economic weakness have moved to the fore as a manufacturing index showed Monday that US activity contracted for a second successive month in May.

On Tuesday, official data showed job vacancies slipped to just under 8.1 million in April, 300,000 fewer than a month earlier, and well below market expectations.

That suggested a long-running period of high inflation and borrowing costs was taking its toll on the US economy.

– Key figures around 1600 GMT –

New York – Dow Jones: UP 0.2 at 38,782.15 points

New York – S&P 500: UP 0.7 percent at 5,328.50

New York – Nasdaq: UP 1.3 percent at 17,076.23

London – FTSE 100: UP 0.2 percent at 8,246.95 (close)

Paris – CAC 40: UP 0.9 percent at 8,006.57 (close)

Frankfurt – DAX: UP 0.9 percent at 18,575.94 (close)

EURO STOXX 50: UP 1.7 percent at 5,035.66 (close)

Tokyo – Nikkei 225: DOWN 0.9 percent at 38,490.17 (close)

Hong Kong – Hang Seng Index: DOWN 0.1 percent at 18,424.96 (close)

Shanghai – Composite: DOWN 0.1 percent at 3,087.56 (close)

Dollar/yen: UP at 156.21 yen from 154.88 yen on Tuesday

Euro/dollar: DOWN at $1.0863 from $1.0883

Pound/dollar: DOWN at $1.2768 from $1.2772

Euro/pound: DOWN at 85.07 pence from 85.19 pence

West Texas Intermediate: UP 0.5 percent at $73.59 per barrel

Brent North Sea Crude: UP 0.5 percent at $77.89 per barrel

burs-lth/rlp

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