Global Market Overview

Last updated: September 8, 2012 11:30 am

Stocks rise on hopes for Fed stimulus

Friday 21.10 BST. Stocks on Wall Street extended gains after a slightly disappointing US jobs survey raised expectations that the Federal Reserve will provide additional stimulus measures to boost growth.

The S&P 500 added 0.3 per cent and rose to its best level since 2008 and wrapped up a 2 per cent gain for the week. In contrast, the dollar index, which tends to display an inverse correlation to broader market risk appetite, is down 1.1 per cent to its lowest point in nearly four months.

The dollar’s decline suggested that the August non-farm payrolls report was sufficiently lacklustre to encourage more bets that the Federal Reserve may introduce another round of monetary support, possibly as soon as next week.

“The dollar is showing independent weakness across the board this morning as financial markets anticipate further Fed easing at next week’s FOMC meeting,” said Michael Woolfolk, a managing director at BNY Mellon Global Markets.

“Uncertainty remains high on both sides of the Atlantic, with the economic outlook deteriorating and monetary easing the order of the day,” he said.

Gold seemed to agree. The bullion, which often rallies when traders perceive a greater chance of another central bank liquidity boost, soared $34 to $1,735 an ounce, its highest price since late February.

Buying of US Treasuries, where 10-year yields slid 8 basis points to 1.60 per cent, also reflected a belief in more Fed action.

Analysts’ consensus was for a net gain in US jobs of 125,000 and for the unemployment rate to stay at 8.3 per cent, according to Reuters.

In the event, only 96,000 positions were added and the previous two months’ gains were revised down by 41,000 in total.

There were better headline news regarding the jobless rate, which fell to 8.1 per cent. But this improvement was also cast in doubt as it came on the back of a 370,000 reduction in the workforce.

“Job creation is painfully slow and it might be the trigger for additional QE at next week’s Federal Open Market Committee meeting,” said Annalisa Piazza at Newedge Strategy.

Still, investor sentiment also continued to be supported by Thursday’s confirmation that the European Central Bank is prepared to intervene in the eurozone bond markets.

The FTSE Eurofirst 300 rose 0.2 per cent after bouncing 2.4 per cent on Thursday, while the euro hit its highest since mid-May. The currency traded up 1.4 per cent to $1.2803. Both units have also been helped by news that German industrial output unexpectedly rose in July.

Asian traders early on Friday got their first chance to react to confirmation that the eurozone’s central bank was prepared to deploy unlimited resources to save the euro, buying the short-term bonds of heavily indebted nations if requested, though reform strings would be attached.

The eurozone sovereign debt crisis has gnawed at market confidence for the past few years, so any sense that the worst may now be over – Spanish 10-year borrowing costs have dropped below 6 per cent for the first time in nearly five months – has been greeted with relief by the more optimistic among the trading community.

The FTSE Asia Pacific index subsequently jumped 2.2 per cent as those countries with high export exposure to Europe were in particularly fine fettle. South Korea’s Kospi bounced 2.6 per cent, Japan’s Nikkei 225 rose 2.2 per cent and Hong Kong’s Hang Seng added 3.1 per cent.

Commodities and their closely correlated currencies are usually boosted by the prospects of further Chinese development, and copper rose 3 per cent to $3.63 a pound while the Australian dollar climbed 1.1 per cent to $1.0395.

Additional reporting by Jamie Chisholm in London

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