US jobs report brightens prospects for stocks, dollar

People walk on Wall Street in front of the New York Stock Exchange (NYSE) in New York. ― Reuters pic
People walk on Wall Street in front of the New York Stock Exchange (NYSE) in New York. ― Reuters pic

NEW YORK, June 2 ― World stocks and the US dollar rose while Treasury debt prices fell yesterday as investors welcomed a stronger-than-expected American jobs report and an apparent end to a political crisis in Italy, although prospects for a full-blown global trade war limited the gains.

The MSCI All-Country World index, which tracks shares in 47 countries, gained 0.81 per cent. Still, it was set for a third week of losses, brought on by earlier risks of a snap election in Italy.

The robust US jobs report locked in expectations of an interest rate hike by the Federal Reserve this month and sent US stocks higher.

Nonfarm payrolls increased by 223,000 jobs in May, while average hourly earnings rose 0.3 per cent after edging up 0.1 per cent in April. The unemployment rate dropped to an 18-year low of 3.8 per cent.

“The takeaway is the economy is doing nicely,” said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors Inc.

“Inflation is exactly where they want it to be,” he said of the Fed.

The good news helped names like Apple Inc, Microsoft Corp, and Google parent Alphabet Inc resume their role leading indexes higher.

The Dow Jones Industrial Average rose 219.37 points, or 0.9 per cent, to 24,635.21, the S&P 500 gained 29.35 points, or 1.08 per cent, to 2,734.62 and the Nasdaq Composite added 112.22 points, or 1.51 per cent, to 7,554.33.

Benchmark 10-year Treasury notes fell 21/32 in price to yield 2.8985 per cent, from 2.822 per cent late on Thursday.

Leaders of Italy's anti-establishment parties revived coalition plans late on Thursday, apparently ending three months of political turmoil. The new government was being installed yesterday. That sent stocks broadly higher as government borrowing costs moved lower in Europe.

Trade tensions

Of potentially greater concern to investors was the renewed prospect of a global trade war after the United States imposed steel and aluminium tariffs on Canada, Mexico and the European Union.

Canada and Mexico retaliated with levies on billions of dollars of US goods from orange juice to pork. The European Union was set to tax bourbon and Harley-Davidson Inc motorcycles.

The biggest hurdle for US exports may be the climbing dollar. An index of the greenback against its trading partners rose 0.22 per cent.

The Canadian dollar fell 0.01 per cent and the Mexican peso lost 0.09 per cent versus the US dollar. Both currencies fell on Thursday after the US decision to impose tariffs.

The strong dollar weighed on oil prices, which are quoted in the currency. US West Texas Intermediate (WTI) crude futures fell US$1.23 (RM4.89) a barrel to settle at US$65.81 a barrel. Global benchmark Brent fell 77 cents to US$76.79 a barrel. Brent crude oil futures contracts and US WTI hit its widest for three years before narrowing.

But Brent is still nearly 30 per cent above its lows for this year, heaping pressure on emerging markets already taxed by the rising dollar and, now, accelerating withdrawals by foreign investors. Investors globally pulled US$2 billion from emerging market stock funds in the most recent week ended Wednesday, the most since the last week of 2016, according to research service EPFR Global.

Brazilian financial markets dropped on Friday after the chief executive officer of Petroleo Brasileiro SA resigned, driving down shares in the state-controlled oil company as much as 21 per cent. The Brazilian real weakened 1.01 per cent against the greenback.

Turkey's lira, meanwhile, weakened more than 2 per cent against the dollar, resisting the efforts of the central bank to arrest a sharp slide this year. ― Reuters

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