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Global bond markets came under selling pressure on Friday after data showed the US created more jobs than expected, raising investors’ hopes that the central bank would ease its crisis-era stimulus package as the economy recovers.
As optimism rose, investors sold 10-year US Treasury bonds, traditionally a haven asset, and pushed the yield on the note 0.08 percentage points higher to 1.29 per cent. Government bond prices in the UK and continental Europe also fell. The S&P 500 equity benchmark briefly touched a new record high, extending its gains of the week.
The report showed that non-farm payrolls rose by nearly 1m in July, ahead of analysts’ forecasts. The unemployment rate fell 0.5 percentage points in July from June to 5.4 per cent, illustrating substantial progress but still well above levels reached at the end of 2019 before the pandemic struck.
The jobs report is the last ahead of the summit of global central bankers at Jackson Hole, Wyoming, at the end of the month. The strong employment numbers will intensify the debate over when the US Federal Reserve will begin to rein in its ultra-supportive policies as the economic recovery from Covid-19 gathers pace. The world’s most important central bank has kept interest rates at historic lows and purchased $120bn in assets each month throughout the health emergency.
“Today’s bumper payrolls report highlights a roaring recovery in the labour market and increases the chances of the Fed tapering their asset purchases sooner rather than later,” said Mike Bell, a strategist at JPMorgan Asset Management.
“The strength of hiring calls into question the rally in treasuries that took place during the past few months and we expect this to be the start of a sustained move higher in treasury yields over the rest of the year,” he added.
The blue-chip S&P 500 inched up 0.2 per cent, extending the all-time high it set on Thursday, while the tech-focused Nasdaq dropped by 0.5 per cent in New York. Analysts at Goldman Sachs said this week they expected the blue-chip S&P 500 index to gain a further 7 per cent by the end of 2021, on top of the 17 per cent rise so far.
The dollar nudged higher, trading up 0.6 per cent against a basket of currencies.
Europe’s benchmark Stoxx 600 index traded in a tight range, leaving it on track for its best week in five months after repeatedly notching new records this week.
The UK’s FTSE 100 rose 0.1 per cent as investors were encouraged by more hawkish comments from the Bank of England on Thursday. The yield on two-year gilts rose to as much as 0.162 per cent, its highest level since April last year after the bank indicated there would be “modest tightening” of its interest rate policy to control inflation.
Markets in Asia were muted after a nervy week, as investors parsed statements from China’s ruling party to try to figure out which sectors might be targeted next as Beijing seeks to assert greater control over parts of the economy. Tech, tutoring and gaming stocks have all been hit in recent weeks. Hong Kong’s Hang Seng index drifted on Friday while China’s CSI 300 fell 0.6 per cent.
Elsewhere, oil benchmark Brent crude fell 0.7 per cent to $70.76 a barrel, capping a volatile week where prices fell about 5 per cent, heading for its worst week since March on worries that the spread of the Delta coronavirus variant and fresh travel curbs would mute demand.
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