Investors' Reactions to Economic News
Investors celebrated the news as a potential sign of cooling inflation.
ASX futures were up 51 points or 0.71% at 7163 as of 7:00am Saturday, pointing to a gain at the open.
The Dow Jones Industrial Average rallied more than 600 points on Friday after fresh data showed a slowdown in wage growth, an upbeat sign for the Federal Reserve's battle against inflation that could ease pressure for further interest rate increases.
The Dow rose 660 points in afternoon trading, or 2%, while the broad-based S&P 500 gained 2.2%. The technology-heavy Nasdaq Composite advanced 2.5%. The day's rally put all three major US stock indices on track to close the first week of 2023 in positive territory. Near the end of trade on Friday, the Dow and S&P 500 were up more than 1% for the week, while the Nasdaq was poised for a weekly gain of 0.9%.
The Labor Department's monthly jobs report showed that employers added 223,000 jobs in December, the smallest gain in two years but more than the 200,000 expected by economists. The ability of US companies to keep hiring shows that the job market has held up even as the Fed's rate increases have sparked worries about a potential recession.
In commodity markets, Brent crude oil dipped 0.18% to $US78.55 a barrel while gold rose 2.01% to US$1,869.71.
In local bond markets, the yield on Australian 2 Year government bonds edged up to 3.40% while the 10 Year edged down to 3.82%. Overseas, the yield on 2 Year US Treasury notes fell to 4.26% and the yield on 10 Year US Treasury notes increased slightly to 3.57%.
The Australian dollar edged up to 68.78 US cents from the previous close of 67.49. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, dipped to 96.62.
Asia
Chinese shares reversed early losses to close higher, ending the first week of 2023 on a firm note. Investors were encouraged by China's reopening progress and easing restrictions on its embattled property market, expecting robust economic growth after the country emerges from the pandemic. Chip makers and auto manufacturers led gains. TCL Zhonghuan Renewable Energy Technology rose 4.8% and Great Wall Motor added 0.8%. Property stocks weighed on the market despite media reports that Beijing will likely further ease developers' borrowing curbs. China Vanke dropped 0.6% and Poly Developments fell 1.4%. The Shanghai Composite Index edged 0.1% higher to 3157.64, the Shenzhen Composite Index rose 0.2% and the ChiNext Price Index climbed 0.95%.
Hong Kong stocks ended slightly lower, pulling back from the rally earlier this week that repeatedly pushed the equity market to multi-month highs. The benchmark Hang Seng Index fell 0.3% to settle at 20991.64. Chinese consumer goods and services companies led the downturn as the sectors retreated from recent strong gains. Online medical platform Alibaba Health fell 5.0%, restaurant operator Haidilao lost 4.0% and casino company Galaxy Entertainment shed 3.5%.
Japanese shares ended higher, led by gains in electronics and auto stocks, as the yen weakened versus the dollar following strong US economic data overnight. Tokyo Electron Ltd. gained 3.1% and Honda Motor advanced 1.9%. The Nikkei Stock Average rose 0.6% to close at 25973.85.
Europe
European stocks gained after US nonfarm payroll data showed a wage growth slowdown, sparking hopes of an easing in US interest rates. The pan-European Stoxx Europe 600, the French CAC 40 and the German DAX each rose by more than 1% while the British FTSE 100 advanced 0.9%, with mining and industrial stocks among the biggest risers.
"Stocks are unfazed by signs of weakness in the US economy following the ISM report and a drop in month-on-month US job creation," IG analyst Chris Beauchamp wrote. "That stocks have risen this afternoon might seem odd, but the general takeaway is weaker data will help to slow down the Fed earlier than expected, or perhaps bring forward the first US rate-cut."
North America
The Dow Jones Industrial Average rallied more than 600 points on Friday after fresh data showed a slowdown in wage growth, an upbeat sign for the Federal Reserve's battle against inflation that could ease pressure for further interest rate increases.
The Dow rose 660 points in afternoon trading, or 2%, while the broad-based S&P 500 gained 2.2%. The technology-heavy Nasdaq Composite advanced 2.5%.
The day's rally put all three major US stock indices on track to close the first week of 2023 in positive territory. The Dow and S&P 500 are up more than 1% for the week, while the Nasdaq is poised for a weekly gain of 0.9%.
The Labor Department's monthly jobs report showed that employers added 223,000 jobs in December, the smallest gain in two years but more than the 200,000 expected by economists. The ability of US companies to keep hiring shows that the job market has held up even as the Fed's rate increases have sparked worries about a potential recession.
The report also showed wage growth continuing to cool. Average hourly earnings rose 0.3% in December from the previous month, down from a 0.4% increase in November. They were up 4.6% from the previous year, down from a revised 4.8% gain in November and well below a March peak.
"Investors are celebrating the fact that the average hourly earnings number was less than expected," said Michael Arone, chief investment strategist at State Street Global Advisors. "There was fear going in that wage inflation would remain hot."
The data reduced fears of a so-called wage-price spiral, in which employees would demand pay hikes in response to climbing prices, and the influx of money into their pockets would fuel further inflation. Such a scenario could have pressured the Fed to hike rates aggressively. The US central bank is set to make its next policy decision at its Jan. 31-Feb. 1 meeting.
Some investors said Friday's jobs report suggested that the US economy was on track for a soft landing, in which the Fed raises rates enough to bring down inflation but without triggering a painful downturn.
"There is a real possibility of a soft landing," said Thomas Hayes, chairman of Great Hill Capital.
Friday's rally was broad-based, with all 11 sectors of the S&P 500 posting gains. Costco Wholesale was the best-performing stock in the index, advancing 6.6% after the bulk retailer reported strong holiday sales.
World Wrestling Entertainment surged 19% after its former chief executive Vince McMahon said he plans to return to the company and pursue a sale of the business. Bed Bath & Beyond continued its plunge, tumbling 21% on Friday, a day after warning that it might file for bankruptcy protection after a steep loss in the latest quarter.
