Stocks rally, bond yields rise on US jobs data

NEW YORK, Oct 6 (Reuters) – Friday’s U.S. jobs report sparked a late rally on Wall Street as the data revealed a strong economy with moderate inflation, helping to put aside fears of higher interest rates.

September’s jobs numbers were more than double the forecast of 170,000 economists polled by Reuters and shocked markets trying to make sense of how the U.S. Federal Reserve would fare with a strong economy and its intention to cut rates to its 2% target.

Nonfarm payrolls rose by 336,000 jobs last month, the Labor Department said, adding 227,000 jobs instead of the 187,000 previously reported, as data for August was revised upward.

“The economy may have shifted structurally to where real yields should be higher than they were in the five years before the pandemic,” said Marvin Low, senior global macro strategist at State Street in Boston.

“We’re in a period where it’s not clear how much of a recession the 500 basis points have actually created,” he said, referring to the amount by which the central bank would raise interest rates from March 2022.

The yield on the key 10-year Treasury note jumped more than 13 basis points within half an hour of the report to a fresh 16-year high of 4.8874%, adding to this month’s steep selloff. Bond earnings move inversely with prices.

Bond yields later eased slightly from early gains and the three major U.S. stock indexes rallied as equity investors saw a further slowdown in inflation moderating wage growth.

“We’ve got rates up, inflation is coming down and the economy is growing,” said Tim Krisky, senior portfolio strategist at Ingalls & Snyder in New York.

“It’s the best of all worlds as long as inflation keeps coming down, and that’s the risk – if inflation doesn’t come down,” he said.

Futures traders raised the probability of the Fed hiking rates to 29.2% in November, according to CME Group’s FedWatch tool. The central bank’s overnight rate remained above 5% until next July.

Everyone who saw September’s employment data was stunned, said Matt Miskin, associate investment strategist at John Hancock Investment Management in Boston. “The jobs report was a shocker and the market reaction was stunning.”

The addition of 70,000 government jobs represents another delicate valve for the economy, he said. “What you have to point out is that deficit-spending helps this economy to be stronger than it would otherwise be,” he said:

“At the end of the day, because the jobs market is so strong, I think it will increase a rate hike.”

The dollar index, a measure of the greenback against six other currencies, rose early and then fell 0.24%, snapping an 11-week winning streak after hitting its best level in nearly 11 months during the week.

The euro broke an 11-week low against the dollar.

Oil prices rose but posted their steepest weekly losses since March after another part of Russia’s fuel export ban was lifted, fueling demand fears due to economic interventions.

Brent futures were up 51 cents at $84.58 a barrel. US West Texas Intermediate crude futures were up 48 cents at $82.79.

Euro zone bond yields have gained, while the gap between German and Italian borrowing costs – an indicator of stress on Italian finances – was at its widest since March.

Global bond funds recorded huge weekly outflows.

MSCI’s gauge of stocks around the world (.MIWD00000PUS) closed up 1.0%, while the pan-European STOXX 600 index (.STOXX) rose 0.82%.

The Dow Jones Industrial Average (.DJI) was up 0.87%, the S&P 500 (.SPX) was up 1.18% and the Nasdaq Composite (.IXIC) was up 1.6%. The S&P 500 snapped a four-week losing streak.

Gold prices helped a technical recovery after nine days of losses, although strong US jobs data raised concerns about another US rate hike and kept gold on track for its second weekly decline.

U.S. gold futures were up 0.7% at $1,845.20 an ounce.

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