STOCK markets rallied yesterday, closing out the week on a high in the United States following a bumper jobs report and a deal in Congress to avert a potentially catastrophic debt default.

The stronger-than-expected employment data released yesterday morning suggests the US economy remains resilient despite concerted action from the Federal Reserve to suppress demand and bring down high inflation.

The passage of a debt limit deal through both houses of Congress appears to have eased market fears of a debt default as well, with Wall Street’s “fear gauge” sinking to its lowest level since before the Covid-19 pandemic.

The US dollar strengthened against rival currencies as foreign exchange traders digested the news, while Asian and European stocks also closed in the green yesterday.

“The Senate swiftly approved the new debt ceiling deal in the US prompting relief in the markets,” said AJ Bell investment director Russ Mould.

“A bigger bounce might have been forthcoming had investors not already been very much factoring in an agreement, with only a modest sell-off around the crisis,” he added.

Official data released yesterday showed that the United States added 339,000 jobs in May even as the unemployment rate climbed to 3.7% and wage gains fell, signalling a persistently strong labour market.

The debt deal and the “Goldilocks” jobs report – neither too good nor too bad – suggests the US economy “is not facing an immediate risk of a recession,” Edward Jones investment strategist Angelo Kourkafas told AFP.

Fed under pressure

Monetary policy officials have said a softer labour market and much lower inflation were key to the central bank being able to stop lifting borrowing costs.

Analysts had expected the Fed to relent on more than a year of interest rate hikes aimed at curbing historically high inflation if jobs market numbers cooled.

But yesterday’s job data drew different reactions, with some predicting the Fed is now under more pressure to increase interest rates later this month, while others suggested it can still afford to skip a hike this time around.

The higher-than-expected job creation figures “will add pressure on the Federal Reserve to continue its path of increasing rates,” said Srijan Katyal at the international brokerage ADSS.

“It’s likely that the Federal Reserve will raise interest rates by at least 25 basis points when it next meets,” he added.

But Kourkafas of Edward Jones said the “mixed” jobs report “suggests that they could possibly skip a hike in June and deliver more tightening if needed later in the year.”

Oil prices meanwhile jumped as traders eyed a weekend output meeting of the Opec+ grouping of crude producers.

London stocks were also lifted after pet care firm Dechra Pharmaceuticals agreed to a £4.5 (RM25.6) billion takeover by Swedish private equity firm EQT and the Abu Dhabi Investment Authority.

Key figures around 2100 GMT

New York - Dow: UP 2.1% at 33,762.76 points (close)

New York - S&P 500: UP 1.5% at 4,282.37 (close)

New York - Nasdaq: UP 1.1% at 13,240.76 (close)

London - FTSE 100: UP 1.6% at 7,607.28 (close)

Paris - CAC 40: UP 1.9% at 7,270.69 (close)

Frankfurt - DAX: UP 1.3% at 16,051.23 (close)

EURO STOXX 50: UP 1.6% at 4,323.52 (close)

Tokyo - Nikkei 225: UP 1.2% at 31,524.22 (close)

Hong Kong - Hang Seng Index: UP 4.0% at 18,949.94 (close)

Shanghai - Composite: UP 0.8% at 3,230.07 (close)

Euro/dollar: DOWN at US$1.0709 from US$1.0762 on Thursday

Dollar/yen: UP at  ¥139.97 from ¥138.80

Pound/dollar: DOWN at US$1.2448 from US$1.2526

Euro/pound: UP at 86.01 pence from 85.91 pence

Brent North Sea crude: UP 2.5% at US$76.13 per barrel

West Texas Intermediate: UP 2.3% at US$71.74 per barrel – AFP, June 3, 2023.