Yields surge, stocks falter after US jobs report

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NEW YORK / LONDON – Benchmark Treasury yields surged on Friday amid fears of rising inflation, but some equity markets rose after a weak U.S. jobs report likely pushed back the timetable for the moment when the Federal Reserve will begin to reduce its massive support to the economy.

U.S. employers created the fewest jobs in seven months in August as the COVID-19 Delta variant hurt the entertainment and hospitality industry, but a 0.6% increase in wages and other data showed an underlying strength in the economy.

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Non-farm payrolls rose 235,000 in August, well below the 728,000 predicted by economists in a Reuters poll. But the unemployment rate fell to 5.2% from 5.4% in July, the Labor Department said.

The Dow and European indices fell as slowing US job growth raised questions about the pace of the recovery. But the US-centric Nasdaq and MSCI world index edged up after the report allayed fears of an imminent cut to the Fed’s bond buying program.

A cut announcement is not expected in September after the jobs report, said Lee Ferridge, North America’s head of multi-asset strategy at State Street Global Markets.

“The Fed’s support for these markets will persist. Typing starts later than earlier. It’s positive for equities, it’s positive for risk, ”he said.

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“As long as the Fed prints, it means the equity markets are supported by the whole QE liquidity argument,” Ferridge said.

MSCI’s All-Country Global Index, which is 60% U.S. stocks, rose 0.14% and the tech-rich Nasdaq gained 0.13%. Both indices were on the verge of setting closing records.

The S&P 500 Index edged up 0.03%, led by information technology and communications services, but most sectors were down. The Dow Jones Industrial Average fell 0.11% and the broad STOXX Europe 600 index of pan-regional stocks closed down 0.56%.

It was not all gloomy. Eurozone trade activity remained strong last month, IHS Markit’s survey showed, suggesting that the bloc’s economy could return to pre-COVID-19 levels by the end of the month. year despite fears about the Delta variant.

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The European Central Bank is meeting next week amid calls from several hawkish members to slow its asset purchase program in the era of the pandemic. A Reuters poll indicates that the bank is announcing a reduction in its asset purchases, given the recent surge in inflation.

Yields on the benchmark 10-year Treasury bond rose 2.7 basis points to 1.3207%, with the U.S. jobs report pointing to a jump in hourly earnings, raising fears of the inflation.

The dollar index fell to a low of 91.941, its lowest level since August 4, and last lost 0.20% to 92.0350.

The single European currency edged up 0.11% to 1.1889. The markets are starting to react to the potential for more sustained inflation in the euro area and to the reduction in the ECB’s stimulus measures.

JAPAN JUMPS, CHINA LIFTS

Japanese stocks surged after officials announced Prime Minister Yoshihide Suga would step down, paving the way for a new prime minister after a one-year term marred by an unpopular response to COVID-19 and a rapid decline in public support .

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Japan’s TOPIX stock index hit a 30-year high and last rose 1.61%, with the Nikkei gaining 2%. However, Asian stocks are still a long way from their highs at the start of the year and are lagging behind other countries.

Meanwhile, Chinese blue chips were down 0.5% and Hong Kong was down 0.72% after activity in China’s services sector collapsed into a sharp contraction in August, a showed a private investigation on Friday, affected by restrictions imposed to curb the COVID-19 Delta variant.

Oil prices have slipped on the U.S. Labor report showing patchy recovery from the pandemic, but losses have been capped by fears that U.S. crude supplies continue to be constrained in the aftermath of Hurricane Ida, which reduced US offshore production.

Brent crude futures fell 42 cents to $ 72.61 a barrel. US crude fell 70 cents to settle at $ 69.29 a barrel.

Gold rose more than 1% to its highest level in 2.5 months, with weak US job growth pushing the dollar down and casting doubt on the Fed’s cut schedule.

US gold futures were up 1.2% to $ 1,833.70 an ounce.

(Additional reporting by Alun John in Hong Kong; Kevin Buckland in Tokyo; Editing by Dan Grebler and Andrea Ricci)

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In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.

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