New York: Stocks mostly fell Friday on both sides of the Atlantic after data showed that the US economy added far fewer jobs than expected last month and eurozone inflation hit a record high.
London’s FTSE 100 index bucked the trend, ending the day 0.5 percent higher, but Paris and Frankfurt slid.
On Wall Street, the Dow treaded water, but both the S&P 500 and Nasdaq declined to conclude a down week for US stocks.
Asia faced a mixed trading session after another round of losses on Wall Street on Thursday as investors continued to mull signals by the US Federal Reserve that it was ready to tighten monetary policy more quickly to combat spiking inflation.
The dollar dipped, while oil pulled back modestly after days of strong gains.
Government data showed that the US economy added only 199,000 jobs in December.
While that was less than half of what analysts expected, the unemployment rate fell to 3.9 percent, wages rose strongly and participation in the labor force held steady, indicating the job market remains tight.
“The key takeaway from the report is that it shows the Fed is close to meeting its objective of maximum employment and that wage growth in a tight labour market risks feeding into more persistent inflation pressures that will need to be addressed with a tighter policy position,” said market analyst Patrick O’Hare at Briefing.com.
Inflation and tapering
Surging inflation has pushed the Fed to begin to wind down its bond-buying stimulus program ahead of raising interest rates, and central banks in a number of other countries have already raised rates.
Minutes released earlier this week from the Fed’s December policy meeting signaled a more aggressive rate-tightening path, arguing “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
There were also indications officials were considering reducing its massive bond holdings, putting further upward pressure on lending costs..
“Investors remain apprehensive following the Federal Reserve’s move to a more hawkish stance, with the jobs report later providing further colour to the economic backdrop,” said Richard Hunter, head of markets at Interactive Investor..
Data showing that eurozone inflation hit a record high of 5.0 percent in December was likely to heap additional pressure on the European Central Bank, which has so far indicated it has no plans to raise interest rates this year.
The surge in prices in recent months is mainly due to the exceptional rise in gas and electricity prices.
In December, the annual increase in energy prices reached 26 percent, far ahead of the other products surveyed in Eurostat’s basket.
The dollar was on track for its biggest daily percentage drop in six weeks on Friday on the heels of the December US jobs report that missed expectations, but it was still seen as strong enough to keep the Federal Reserve’s tightening path intact.
The dollar index fell 0.546 per cent at 95.734, and was poised for its biggest drop since Nov. 26, when concerns about the Omicron COVID-19 variant began to rattle markets. Even with Friday’s weakness, the dollar was still on track for a slight weekly gain, its first in three weeks.
The Labor Department said nonfarm payrolls rose by 199,000 last month, well short of the 400,000 estimate. But analysts noted underlying data in the report appeared sturdier, with the unemployment rate falling to 3.9 per cent against expectations of 4.1 per cent while earnings rose by 0.6 per cent, indicating tightness in the labor market.
The report also increased expectations the Fed will begin to hike interest rates at its March meeting, with futures on the federal funds rate implying a 90 per cent chance of a hike, up from 80 per cent on Wednesday.
“While the headline might have fallen short of the consensus, the consensus doesn’t matter much to the Fed. For them, this probably justifies their hawkish tilt,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.
“We’ll have to see how whether they walk the walk of their hawkish talk, but the odds are rising for a rate hike in March or May and a balance sheet run-off beginning later next year.” On Wall Street the benchmark S&P 500 SPX was modestly lower, while the yield on the benchmark 10-year US Treasury note touched 1.80 per cent, its highest since January 2020.
The euro was up 0.62 per cent to $1.1361 as it strengthened against the greenback in the wake of the payrolls report, after showing little reaction to data showing euro zone inflation rose to per cent in December.
Euro zone policymakers have said they expect inflation to gradually slow down in 2022 and a rate hike will likely not be needed this year.