Global Market Overview

Last updated: February 1, 2013 9:21 pm

Dow hits 14,000 after firm US jobs data

Friday 21:10 GMT. A stronger US jobs report, evidence of moderate manufacturing growth in China and improving factory activity in Europe boosted confidence about the global economy and delivered a positive start to the month for major equity benchmark indices.

The FTSE All-World equity index rose 0.7 per cent as the S&P 500 advanced 1 per cent to close at 1,513, moving closer to its all-time record of 1,565 points.

The Dow Jones Industrial Average also shot 1 per cent higher to 14,009 and less than 200 points off its all-time peak, having received extra propulsion from well-received US consumer sentiment and ISM manufacturing reports for January.

Growth-focused commodities were in demand, with copper up 0.8 per cent to $3.76 a pound and Brent crude adding 0.9 per cent to $116.57, a four-month high.

Easing eurozone debt tensions, continued central bank largesse, better data from China and Europe, and hopes that the US economy is picking up steam all helped boost investors’ risk appetite in recent months.

But the strength of the latter factor was called into question this week following a surprise contraction in US fourth-quarter GDP. This helped briefly stall the rally in growth-sensitive products that had seen the S&P 500 climb 5.1 per cent in January to five-year highs.

Many analysts and investors questioned whether the GDP data accurately reflected the underlying condition of the world’s biggest economy, and bulls were looking to Friday’s US non-farm payrolls numbers to provide confirmation that the report was nothing more than a backward-looking aberration.

According to Reuters, consensus estimates were for a net 160,000 jobs to have been created in January and for the unemployment rate to be unchanged at 7.8 per cent.

In the event, 157,000 positions were added, but the previous two months saw aggregate upward revisions of 127,000, suggesting the labour market was more robust than initially thought.

The jobless rate rose to 7.9 per cent. But this increase may also be considered by traders to be risk asset-positive, as it suggests the Federal Reserve will maintain its loose policy for longer because the central bank has tied its strategy specifically to a reduction in the unemployment rate to lower than 6.5 per cent.

This reasoning can be seen in the way Treasuries reacted to the jobs report. Often a bullish stock market would cause core fixed income to be sold as investors favour racier bets and position for stronger growth.

But 10-year note prices initially rose, dragging yields 3 basis points lower. Later in the session, Treasuries headed back lower, pushing the yield on the 10-year note up 3 basis points to 2.02 per cent.

Gold, another beneficiary of perceived central bank largesse, jumped $18 at one point, though it closed only $3 to $1,666 an ounce as the dollar index shed 0.1 per cent.

The better news on US jobs came midway through a global session that was already feeling fairly positive following supportive manufacturing surveys out of China and Europe.

China’s Shanghai Composite index rose 1.4 per cent, and the FTSE Eurofirst 300 is up 0.3 per cent as the euro gains 0.9 per cent to $1.3696, a 14-month high.

Earlier, expectations of even more aggressive monetary easing from the Bank of Japan caused the yen to fall to its weakest level relative to the dollar in more than two and a half years.

This was considered a competitive boost for Japan’s exporters and hence the Tokyo stock market has been on a tear. The Nikkei 225 on Friday rose 0.5 per cent, taking its gains since the start of October to 26 per cent.

Additional reporting by Jamie Chisholm in London

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