Wall Street rallies, U.S. Treasuries decline after strong jobs report

Wall Street rallied and US Treasuries sold off on Friday as traders cheered reports showing the economy added jobs in November at the quickest pace in 10 months and consumer sentiment improved.

Wall Street marched higher, taking the three major benchmark indices closer to record territories with the S&P 500 up 0.9 per cent and turning positive for the week.

The Dow Jones Industrial Average gained 1.2 per cent for its biggest one-day gain since early October, while the Nasdaq Composite gained 1 per cent. Despite Friday’s gains both indices were modestly lower for the week.

Demand for haven assets waned. Treasuries sold off with the yield on the policy-sensitive two-year Treasury note up 3.5 basis points to 1.6169 per cent, while that on the 10-year climbed 4.7 bps to 1.8415 per cent. Yields move inversely to price.

The dollar index, a gauge of the buck against a weighted basket of peers, climbed 0.3 per cent and was on track for its first gain since before the Thanksgiving holiday. Despite Friday’s gain, recent softness left the buck down 0.6 per cent for the week, its biggest such loss in 5 weeks.

Hiring had been expected to rebound last month as General Motors employees returned to work, but Friday’s report showed non-farm payrolls increased by 266,000 and blew past economists’ expectations. Moreover, October’s wage gains were revised higher; though last month’s average hourly earnings were slightly below expectations.

US president Donald Trump tweeted “GREAT JOBS REPORT!” and also pointed to the “record numbers” on Wall Street this year.

Adding to the upbeat tempo in markets was a report from the University of Michigan that showed consumer sentiment exceeded forecasts in December, hitting its highest level in seven months.

The data suggest the American economy is on firmer footing in the final quarter of the year, which would allow the Federal Reserve to hold interest rates steady when it delivers its monetary policy decision next week and possibly in coming months.

The fading prospects of a rate cut pushed gold prices lower with the precious metal falling 1.1 per cent today to leave it down 0.3 per cent for the week.

Still some economists cautioned against reading too much into Friday’s data. “Despite today’s blowout number, the US economy is experiencing a slowdown and we expect this to be reflected in weaker payrolls gains in coming months,” James Knightley, economist at ING, said.

He added that a weak global growth environment and uncertainty around the US-China trade war has made US businesses more cautious “and already resulted in two consecutive quarters of falling capital expenditure”.

Meanwhile, Ian Shepherdson, economist at Pantheon Macroeconomics, called it an “outlier report” and said he still expects growth in the final quarter of the year to be “soft”.

Source: Financial Times