Global stocks zoom up as dollar retreats on US employment data

World stocks rallied on Friday while the US dollar retreated from a 24-year high on the yen, after data that showed the US labour market is starting to loosen assuaged investor fears about aggressive interest rate hikes from the Federal Reserve.

US employers hired more workers than expected in August, but moderate wage growth and a rise in the unemployment rate to 3.7% could ease pressure on the Federal Reserve to deliver a third 75 basis point interest rate hike this month.

This cheered investors, and helped the S&P 500 index zoom up 1.2%. The Dow Jones Industrial Average jumped 1%, and the Nasdaq Composite climbed 1.2%.

Softer data is seen as alleviating the need for the Fed to raise rates to aggressively to curb inflation, moves which the market worries could bring on a recession.

European stocks leapt 2% off Thursday’s six-week lows, while Britain’s FTSE jumped 1.8%.

Rallying stock markets helped the MSCI world equity index climb 1.2%. For the week, however, it is headed for a 1.9% drop, which would mark its third straight week of losses.

Fresh lockdowns in China had earlier fuelled concerns about global growth, and high energy costs as a result of the war in Ukraine are weighing on Europe.

“The market is laser-focused on how aggressive the Fed is going to be with its hiking cycle,” said Giles Coghlan, chief currency analyst at HYCM, adding that expectations for higher rates have solidified since a speech last week by Fed chair Jerome Powell at the Jackson Hole central banking conference.

The markets are worried about “China slowing, euro zone recession and a hawkish Fed,” he said.

Equity funds recorded the fourth largest weekly outflow of 2022, while bond funds saw investors pull out money for a second straight week, BofA said in a note.

In Europe, fears of a recession are increasing, with a survey showing on Thursday that manufacturing activity across the euro zone declined again last month, as consumers feeling the pinch from a deepening cost of living crisis cut spending.

The dollar, a beneficiary of rising interest rates, hit a fresh 24-year high against the yen at 140.80, triggering a warning by Japan’s Finance Minister Shunichi Suzuki of “appropriate” action to curb the volatility. By mid-day in New York, the yen had pulled back to 140.07.

The dollar index, which measures its performance against a basket of six currencies, dropped 0.6% to 108.95, after hitting a 20-year high in the previous session.

A softer dollar lifted the euro by 0.8% to $1.0027 .

In bond markets, the yield on benchmark two-year notes fell to 3.4141%, after hitting a 14-year high of 3.5510% on Thursday.

The yield on 10-year bonds fell to 3.2139%. German 10-year bond yields rose 2.5 bps to 1.589%, near recent two-month highs, as expectations grow of a 75 bps hike next week from the European Central Bank.

“Almost half the euro zone is suffering inflation of over 10%, the pressure on the ECB is mounting,” said Martin Moryson, European economist at DWS.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, heading for its worst weekly performance since mid-June with a tumble of 3.6%.

Japan’s Nikkei was steady and Chinese blue chips dropped 0.5%.vThe southwestern Chinese metropolis of Chengdu on Thursday announced a lockdown of its 21.2 million residents, while the technology hub of Shenzhen also rolled out new social distancing rules as more Chinese cities tried to battle recurring COVID-19 outbreaks.

“We maintain the view that China will keep its zero-COVID policy until March 2023, when the (leadership) reshuffle is fully completed, but we now expect a slower pace of easing of the zero-COVID policy after March 2023,” analysts at Nomura said.

Oil prices recovered much of their recent losses on expectations that OPEC+ will discuss output cuts at a meeting on Sept. 5, though concern over China’s COVID-19 curbs and weak global growth continued to limit gains.

Brent crude futures rose 2.7% to $94.87 a barrel while US West Texas Intermediate (WTI) crude futures were up by 2.7% to $88.98 a barrel.

A softer dollar boosted spot gold, which rose 1.2% to $1716.89 per ounce.

Russia’s benchmark MOEX stock index climbed to its highest in more than three months on Friday, as investors bet on other companies following Gazprom’s lead in recommending dividends, while the rouble hovered near the 60 mark against the dollar.

Gas giant Gazprom’s board this week recommended the payment of 51.03 roubles ($0.8456) per ordinary share in dividends on the first half of 2022, sending the company’s shares up around 25% and buoying Russian indexes.

“Investors seem to have cheered up and hopes that the dividend idea is alive and that other Russian companies will join with Gazprom are gradually moving the market upwards,” said Alexander Arutyunyan, chief economist at Russ-Invest.

Agencies