Friday 19:00 GMT
What you need to know
● US equities edge higher after solid jobs report
● Non-farm payrolls jump 235,000, annual wage growth hits 2.8%
● Dollar weak and Treasury yields lower
● Oil prices retreat again, WTI below $49 a barrel
The dollar came under pressure and Treasury yields eased from recent highs, as a US jobs report cemented expectations that the Fed would raise rates next week but did little to bolster talk of aggressive action by the central bank in coming months.
An initially strong response to the jobs data by Wall Street came off the boil as a fresh retreat for crude oil prices weighed on the energy sector.
US non-farm payrolls rose by 235,000 last month, easily beating the consensus forecast of a 190,000 increase, and paving the way for the Fed to raise rates next week.
However, there was an air of disappointment in the markets given that a closely watched survey from private payroll processor ADP, released earlier this week, had pointed to an even more robust number.
The US jobless rate slipped to 4.7 per cent from 4.8 per cent, while year-on-year wage growth rose to 2.8 per cent from 2.6 per cent.
“Today, the Fed cleared the last small obstacle on its way to a now virtually certain interest rate rise next week,” said Oliver Kolodseike, senior economist at the Centre for Economics and Business Research.
“Just three weeks ago, most traders thought it was highly improbable that the Fed would hike rates in March.”
Lena Komileva at G+ Economics highlighted that there was room for consolidation following the aggressive repricing seen in the US rates market over the last two weeks.
“As seen from the initial, underwhelmed market reaction, the bar to surprising markets positively with the NFPs was too high after this week’s blockbuster ADP gain,” she said.
“Moreover, the gradual normalisation path of wage growth — up from 2.3 per cent a year ago and a cycle low of 1.5 per cent, reached all the way back in 2012 — argues against a more aggressive Fed hand.
“This is a Fed intent on a sustainable, risk-adjusted policy cycle, which means this is a volatility-averse Fed.”
Indeed, the yield on the monetary-policy-sensitive two-year US Treasury note was down 2 basis points at 1.36 per cent, after hitting a seven-year intraday high of 1.388 per cent earlier in the session. The benchmark 10-year US yield was also down 2bp at 2.58 per cent.
Meanwhile, the dollar index — a measure of the US currency against a basket of peers — was down 0.5 per cent at 101.32, some way short of a 14-year high of 103.82 reached in early January.
On Wall Street, the S&P 500 index was up 0.1 per cent at 2,367 in mid-afternoon trade in New York, although the benchmark US equity gauge was heading for a weekly dip of 0.7 per cent, and was down 1.4 per cent from a record close set at the start of this month.
Across the Atlantic, the Euro Stoxx 600 index ended 0.1 per cent lower, for a five-day drop of 0.5 per cent.
The US energy sector came under fresh pressure from sliding oil prices, although its European counterpart was lifted by a big gain for BP.
Brent was down 1.2 per cent at $51.59, the lowest since the start of December, amid persistent concerns about record high levels of US crude inventories. The day’s move left Brent more than 7 per cent down for the week.
US West Texas Intermediate was 1.2 per cent lower on Friday at $48.71.
The retreat for the dollar index largely reflected a further 1 per cent advance for the euro, as the markets continued to digest post-policy meeting comments on Thursday by European Central Bank president Mario Draghi.
The 10-year German Bund yield rose 7bp to 0.49 per cent.
“Mr Draghi explained during the press conference that the [ECB] council no longer saw an ‘urgency’ for further expansionary measures as the risk of deflation had been overcome,” said Thu Lan Nguyen, currency analyst at Commerzbank.
“He explicitly referred to the fact that the ECB’s long-term tenders to the banks (TLTROs) would expire soon and there had not been any discussion regarding new tenders.”
The dollar was 0.1 per cent lower versus the yen at $114.84, after earlier hitting ¥115.50.
But Lee Hardman, currency analyst at MUFG, said the dollar’s break back above ¥115 had provided a bullish technical signal that the uptrend from late last year had probably resumed and could extend further in the near term.
“The yen has been undermined by the ongoing adjustment higher in overseas yields, which stands in contrast to the Bank of Japan-induced stability in Japanese yields,” Mr Hardman said.
Gold was little moved by the broadly weaker tone of the dollar, with the metal up just $1 at $1,202 an ounce, just off a five-week low.
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