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Non-farm payrolls report lifts US stocks

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Non-farm payrolls report lifts US stocks

In a holiday-shortened week, Wall Street posted solid gains with the rally broad-based.

Research Team
Research Team

The S&P 500 was up 1.8%, while the tech heavy Nasdaq Composite advanced 2% in its sixth consecutive weekly gain. Even the more narrowly focused Dow Jones Industrial Average added 2%, having had its best session of the year on Friday. The Cboe Volatility Index, Wall Street’s fear gauge, on Friday closed at its lowest level since February 2020. Stocks found support from the US debt ceiling bill quickly being able to pass through both the House and Senate, averting a government default. In addition, stocks rallied on Friday following the release of the non-farm payrolls report, with payrolls up 339,000 in May, much higher than the 190,000 estimated.

Signs of resilience in the labour market could prompt the Federal Reserve to continue raising interest rates, although earlier in the week two policymakers indicated that they backed skipping a rate hike at the June meeting. As of Friday, markets were pricing in around just a 28% chance of a hike, according to CME Group. The yield on the two-year Treasury yield, which is more sensitive to policy expectations, rose to 4.5% on Friday, while the 10-year yield ended up at 3.7%.

European equity markets were more mixed for the week, with French and UK indices seeing slight losses, while the major indices for Italy and Germany gained. Equities had faced a difficult start to the week, with the pan-European STOXX 600 hitting a two-month low on underwhelming China data. However the mood managed to pick up as the US debt ceiling bill progressed as well as on easing inflation data. Headline inflation in the eurozone cooled to 6.1% last month, with regional readings also showing and easing of price pressures.

It was another positive week for Japan’s Nikkei 225, gaining nearly 2% to extend its winning streak to eight. Gains continued to be supported by the yen weakness and strong domestic earnings. Chinese equities also managed to end higher, with the Shanghai Composite rising 0.6% and the Hang Seng up 1.1%. The Hong Kong index had briefly dipped into bear market territory, as the latest economic data did not deliver a convincing picture about China’s economic recovery. The official manufacturing PMI remained in contractionary territory for a second month, although the private Caixin PMI unexpectedly moved back into expansionary territory. Nevertheless, the Hang Seng saw a sharp rebound on Friday, up 4%.

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