Dollar sags, stocks rise after U.S. jobs temper rate expectations

By Amanda Cooper

LONDON (Reuters) -The dollar fell on Friday, while stocks extended gains after data painted a picture of a U.S. economy that is creating jobs, but is starting to slow, tempering expectations for the Federal Reserve to keep raising rates as fast to fight inflation.

The Bureau of Labor Statistics said 261,000 workers were added to non-farm payrolls in October, above expectations for an increase of 200,000, but so did the unemployment rate, which rose to 3.7%, suggesting that some of tightness in the labour market could be easing.

Wages meanwhile rose 4.7% year-on-year last month, after a 5% rise in September. The dollar fell against other major currencies, while stocks edged higher in volatile trade.

“There are signs that wage inflation has peaked, and as we move closer to recession that number should come down,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“This is an indication that with recession looming things are going to get ugly going forward. In a recession, wages don’t rise – they stagnate. This could be the last hurrah of hourly wages moving to the upside,” he said.

The MSCI index of global shares rose 0.6% on the day, breaking two straight days of losses, but still headed for a near-3% weekly loss, after more big rate hikes this week from the Fed and the Bank of England.

U.S. stock index futures were last up 0.7-0.9%, compared with gains of around 0.6-0.8% earlier on.

Investors’ risk appetite was running fairly high on Friday, following signals from China that the government could relax some of its stringent restrictions around COVID.

China will make substantial changes to its “dynamic-zero” COVID-19 policy in coming months, a former Chinese disease control official told a conference hosted by Citi on Friday, according to a recording of the session heard by Reuters.

Chinese health authorities will hold a press conference on Saturday on COVID-19 prevention, according to a notice that said officials from the National Bureau of Disease Control and Prevention would attend. No other details were immediately available.

The offshore yuan staged its second-biggest one-day gain versus the dollar in at least a decade, while China-sensitive assets, such as mining stocks, luxury goods makers and commodities rallied sharply, despite China reporting the highest daily count of new local COVID-19 cases in six months on Friday.

“We don’t think we’re going to see any meaningful change in policy until at least after the two sessions meeting in March. So that’s a long way away between now and then,” ING regional head of research Robert Carnell said earlier on Friday.

The Fed on Wednesday set its target interest rate another 75 basis points higher to a range between 3.75% and 4.00% and Chair Jerome Powell said later at a press conference that it was “very premature” to think about slowing the pace of monetary tightening.

In currencies, sterling rose 0.7% against the dollar to $1.1232, paring some of Thursday’s 2% drop after the Bank of England said the economy as facing a two-year recession even as it raised rates by the most since 1989.

“The dollar reception to the data is tepid (in large part because of factors like China/weekend), but multi-week this data is helpful,” Deutsche Bank strategist Alan Ruskin said.

In commodities, oil rose, fuelled by a weaker dollar and hopes for a relaxation of zero-COVID rules in China, which is home to some of the world’s biggest energy consumers. [O/R]

Brent crude rose 3.6% to $98.08 a barrel, while U.S. crude gained 4.1% to trade at $91.78 a barrel.

With the dollar on the back foot, gold rose 1.7% to $1,657 an ounce, heading for its largest one-day increase since Oct. 21. [GOL/]

(Additional reporting by Stephen Culp in New York; Editing by David Evans)