Stocks gain, Treasury yields climb after US payrolls report

Stocks gain, Treasury yields climb after US payrolls report

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks was higher on Friday, on track for its sixth straight week of gains, while U.S. Treasury yields rose following a strong U.S. jobs report forced markets to recalibrate the timing of rate cuts by the Federal Reserve.

U.S. job growth accelerated in November, with the Labor Department’s employment report showing nonfarm payrolls increased by 199,000 jobs last month, above the 180,000 estimate of economists polled by Reuters, after rising by an unrevised 150,000 in October. The unemployment rate fell to 3.7% from the near two-year high of 3.9% in October.

Ahead of the payrolls report, a run of data this week indicated some softening in the labor market, while data in recent weeks showed a cooling of inflation and led markets to increase expectations the Federal Reserve would have the leeway to cut interest rates as soon as March.

Expectations for a March cut of at least 25 basis points (bps) slipped to about 52%, according to CME’s FedWatch Tool, down from about 65% on Thursday.

“This complicates the recent market narrative of Fed rate cuts as early as March, and you do see some of that repricing,” said Alex Coffey, senior trading strategist at TD Ameritrade in Chicago.

“It did move down a little bit and I don’t think that’s a surprise, as for us to actually get a rate cut in March, you’re going to need to start seeing data that confirms a worsening situation. Hard to leave this report feeling that way.”

Other data from the University of Michigan showed U.S. consumer sentiment improved much more than expected in December, snapping four straight months of declines, as households saw inflation pressures easing.

On Wall Street, stocks advanced, led by energy shares as oil prices bounced. The Dow Jones Industrial Average rose 91.27 points, or 0.26%, to 36,207.53, the gained 13.96 points, or 0.32%, to 4,598.78 and the gained 53.80 points, or 0.35%, to 14,393.80.

U.S. Treasury yields shot higher following the payrolls report. The yield on the benchmark U.S. 10-year Treasury note rose 10 basis points to 4.226%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, climbed 11 basis points to 4.692%.

European shares rose to their highest level since February 2022 with the STOXX 600 index up 0.84%. MSCI’s gauge of stocks across the globe gained 0.31% and was poised for a sixth straight weekly gain, its longest streak in four years.

Along with recent economic data, comments from Fed officials, including Chair Jerome Powell, fueled investor speculation about the timing of the central bank’s pivot to a rate cut. The Fed’s next policy meeting is on Dec 12-13, while the next policy announcement from the European Central Bank (ECB) is on Dec. 14. Expectations have also grown the ECB was at or near the end of its rate hike cycle and a cut is on the horizon.

The Fed has raised its main funds rate by more than 5 percentage points since March 2022. With inflation still running above its 2% target and fueled by a tight jobs market and rising wages, Fed chair Jerome Powell has said the central bank is ready to tighten monetary policy again if necessary.

The dollar index, which tracks the greenback against a basket of six currencies, gained 0.22 points, or 0.21%, to 103.76 while the European single currency was down 0.1% on the day at $1.078.

Crude prices bounced after a recent slump put oil benchmarks on track for a seven-week decline, the longest in five years after Saudi Arabia and Russia lobbied OPEC+ members to join output cuts.

U.S. crude recently jumped 2.91% at $71.36 per barrel and Brent was at $76.11, up 2.78% on the day.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)