Equities Rise With Dollar, Strong US Payrolls Dampen Rate Cut Hopes

(MENAFN- Live Mint) By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON -MSCI's global equities index rose on Friday while the dollar climbed to its highest level since mid-August as investors heaved a sigh of relief on news of a surprisingly strong U.S. labor market.

However, oil prices settled higher for a fourth consecutive session as investors braced for a potential Israeli strike on Iranian energy infrastructure.

Earlier on Friday, the U.S. Bureau of Labor Statistics said 254,000 workers were added to nonfarm payrolls last month, above the 140,000 economists had estimated, while August's data was revised higher and the 4.1% unemployment rate was lower than expected.

U.S. Treasury yields rose to their highest level since early August and traders ditched bets that the Federal Reserve will cut rates by half a percentage point next month after the jobs report.

The Fed is now more likely to lower rates by only a quarter percentage point at its next meeting, said Julia Hermann, global market strategist at New York Life Investments.

"U.S. equities reaction to this very strong jobs growth confirms that investors are most concerned about economic growth" even when it comes with a "hawkish disruption," she said.

"The fact the market has been able to digest this hawkish shift points to a constructive view about the economic outlook," Hermann added, pointing to moves in U.S. Treasuries as well as stocks.

Likely bringing further relief for U.S. economy was the reopening on Friday of U.S. East Coast and Gulf Coast ports after dockworkers and port operators reached a wage deal to settle the industry's biggest work stoppage in nearly half a century. However, clearing cargo backlog is expected to take time.

On Wall Street at 2:43 p.m. ET, the Dow Jones Industrial Average rose 187.55 points, or 0.45%, to 42,199.14, the S&P 500 climbed 29.91 points, or 0.52%, to 5,729.85 and the Nasdaq Composite advanced 146.19 points, or 0.82%, to 18,064.67.

MSCI's gauge of stocks across the globe rose 2.63 points, or 0.31%, to 844.93. Earlier, Europe's STOXX 600 index rose 0.44%.

Investors remained anxious about how Israel would respond after Iran fired missiles at it on Tuesday. Supreme Leader Ayatollah Ali Khamenei said earlier that Iran and its regional allies will not back down.

But oil prices had pared gains after U.S. President Joe Biden said that, in Israel's shoes, he would consider alternatives to striking Iranian oil fields and that he thinks Israel has not decided yet how to respond.

U.S. crude settled up 0.9% at $74.38 a barrel and Brent settled at $78.05 per barrel, up 0.55% on the day.

In currencies, the dollar jumped to a seven-week high on Friday and was eying its biggest weekly gain since September 2022 after the jobs report led traders to cut their bets on a big Fed rate cut.

And based on its gains for the full week, New York Life's Hermann said the dollar was also "clearly reacting to geopolitical risk."

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.62% to 102.54.

The euro was down 0.57% at $1.0968. Against the Japanese yen, the dollar strengthened 1.27% to 148.79.

In Treasuries, the yield on benchmark U.S. 10-year notes rose 12.1 basis points to 3.971%, from 3.85% late on Thursday while the 30-year bond yield rose 7.9 basis points to 4.259%.

The 2-year note yield, which typically moves in step with interest rate expectations, rose 20.4 basis points to 3.9176%, from 3.714%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 5.1 basis points.

In precious metals, spot gold fell 0.33% to $2,647.12 an ounce. U.S. gold futures fell 0.38% to $2,647.10 an ounce.

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