Wall Street regains ground after US jobs data

Wall Street stock markets staged a recovery from falls in the previous session, after weaker-than-expected jobs data damped speculation of an interest rate rise.

The Nasdaq Composite index was up 0.6 per cent at lunchtime in New York, after technology stocks tumbled on Tuesday, dragging wider US and European equity markets down with them. The broader-based S&P 500 index gained 0.5 per cent.

Both bourses are trading just below all-time highs reached last week, although investors have turned their attention to an eventual economic rebound in the eurozone, where coronavirus vaccine drives have lagged behind the US. Europe’s Stoxx 600 index closed up 1.8 per cent on Wednesday.

US Treasury secretary Janet Yellen surprised markets on Tuesday by saying that rock-bottom US interest rates might have to rise to cool the rapidly recovering economy.

Yellen later clarified her remarks, which had an outsized effect on growth stocks because of their sensitivity to changing interest rate expectations, saying she did not foresee “an inflationary problem”.

Investors have debated for months what will prompt the US central bank to reduce its $120bn a month of bond purchases begun last March. The Federal Reserve maintains that the US economy still needs monetary support as it emerges from the pandemic.

Data on Wednesday showed that US private sector employers added 742,000 new jobs in April, below the 800,000 forecast by economists polled by Reuters.

However, this rate of hiring was strong enough to satisfy equity investors banking on continued economic growth but also not so rapid it would amplify concerns that the Fed would change its stance, said Georgina Taylor, multi-asset fund manager at Invesco.

“Markets are hostage to everything remaining as it is, with continued recovery while central bank policy stays supportive,” Taylor said. “As long as the economic data isn’t a disaster or extremely strong, people feel they don’t have to think about a different investment regime.”

The hiring figures preceded the US government’s more comprehensive and closely watched non-farm payrolls report, out on Friday, and does not always predict what the official count will show.

Economists expect the non-farms report will show US hiring to have increased by 1m jobs last month. A figure of 2m would cause “investors to think that the Fed might reconsider its view”, said Steven Englander of Standard Chartered.

In government debt markets, the yield on the 10-year US Treasury bond, which moves inversely to its price, added 0.01 percentage point to 1.60 per cent.

UK gilts, which have dropped in price this year as investors have anticipated a run-up in inflation that would erode returns from the fixed interest securities, weakened ahead of a Bank of England meeting on Thursday. The yield on the 10-year UK government bond rose 0.02 percentage points to 0.82 per cent, having risen from 0.175 per cent at the start of 2021.

The BoE last month became the largest buyer of gilts under its quantitative easing programme, aimed at supporting financial markets through the pandemic. Some analysts are now looking ahead to the central bank reducing these purchases.

“The Bank of England remains a long way off tightening monetary policy, but could be one of the first central banks to signal it is thinking about it, possibly in early 2022,” said Shamik Dhar, chief economist at BNY Mellon Investment Management.

The dollar, as measured against a basket of trading partners’ currencies, traded flat. Brent crude futures rose 0.9 per cent to reach $69.48 a barrel.

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