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Friday 21:15 GMT. Solid US jobs figures calmed investors unsettled by hawkish talk from US Federal Reserve policy makers, swinging global stocks back into positive territory and trimming gains for the dollar.
A non-farm payrolls figure of 155,000 that came in slightly above expectations represented a “sweet spot” for sentiment – good enough to lift risky assets but not so good that it fanned fears about the early withdrawal of extra central bank liquidity.
“The very solid US employment data will, if anything, push out the date for an end to quantitative easing and represents solidly risk-positive numbers,” said Alan Ruskin of Deutsche Bank.
Prior to the US jobs numbers, a resurgent dollar had hit 2½-year highs against the yen while gold had sold off with bullion prices particularly vulnerable to expectations of waning central bank liquidity.
The S&P 500 index closed 0.5 per cent higher in New York at 1,466.47 points, its highest close since December 2007. For the week, it gained 4.6 per cent.
The broad measure of US stocks was lifted not only by non-farm payrolls but also by ISM services data reaching 10-month highs, while many European stock markets erased early losses and closed higher in the wake of the US jobs report.
London’s FTSE 100 gained 0.5 per cent as global stocks on the FTSE All World index gained 0.4 per cent, overcoming earlier losses of 0.2 per cent.
The dollar triumphed over the yen in the battle of the haven currencies as the change in tone of minutes from the last Fed meeting was priced in alongside growing pressure in Tokyo for more dovish policies.
Japanese shares surged in a post-holiday catch-up rally after the Fed minutes showed some members of its policy committee favoured ending their $85bn monthly bond-buying programme much earlier than expected this year.
Japan’s Nikkei 225 Average climbed 2.8 per cent to levels last reached in March 2011, with a weaker yen boosting shares of exporters, although the move was consistent with the same fiscal cliff deal bounce enjoyed by Swiss stocks on Thursday when they resumed trading after the holiday.
The yen depreciated above the Y88 per US dollar mark compared with Y86 a week ago, standing 1 per cent lower at Y88.10.
The dollar index touched seven-week highs with US currency strength earlier weighing on the euro, which teetered closer to $1.30 before recovering to stand slightly higher $1.3075. The index also pared some of its gains and closed 0.1 per cent higher.
The Fed minutes showed a divide among committee members on when bond purchases should end, as concern was expressed about the size of the central bank’s balance sheet.
“The minutes have added a fresh degree of uncertainty into the investment climate, which is likely to mean a steeper yield curve,” said Andrew Wilkinson of Miller Tabak. “But equity investors should take heart from the fact that the Fed’s perception is qualified on an improving economy.”
Other analysts cautioned that, despite the tone of the Fed minutes, the doves still remained in the driver’s seat of Fed policy.
“The key issue here is whether this is the usual hawkish/dovish struggle that we see in the Fed where the doves, led by [Ben] Bernanke, win the day,” said Steven Barrow, of Standard Bank.
“We will have to await future speeches to see if any of the doves are becoming more concerned about the consequences of the Fed’s balance sheet expansion,” he added. “We doubt that they are and hence we are sceptical that the markets should get all worked up by yesterday’s minutes.”
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The prospect of an early end to Fed purchases of US government debt had weighed on Treasuries prices with 10-year yields climbing to their highest level for eight months to 1.96 per cent. But the US jobs numbers saw yields move back down to 1.90 per cent, 1 basis point lower on the session.
A risk-averse mood was evident in the commodities markets as Brent crude oil prices fell 0.6 per cent to $111.42 a barrel while US copper prices retreated 0.6 per cent to $369 a pound.
Gold prices sank to a 4½-month low but also pared their worst losses to stand 0.4 per cent lower at $1,656 an ounce.
German Bund yields hit a two-month high, rising 6bp to 1.54 per cent, while 10-year UK gilt yields climbed briefly above those of benchmark French bonds for the first time in nearly two years.
Downbeat services purchasing managers’ index readings from Europe showing figures below the 50 expansion level added to risk-averse trading. But the UK reading – the worst since April 2009 at 48.9 – drew particular concern about the heath of the UK economy.
“The sharp contraction in the UK service sector increases the risk of a triple-dip recession,” said Rob Harbron, of the Centre for Economics and Business Research think-tank.
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