US jobs report drives stocks higher on both sides of the Atlantic

US and European stocks rose on Friday after monthly jobs numbers from the former surpassed economists’ expectations.

The US labour market added 850,000 non-farm jobs in June, compared with a forecast 720,000. The numbers are a substantial increase on the 559,000 gain in May and the unexpectedly weak 278,000 new hires in April.

“Today’s positive US employment release is a further signal the recovery is well under way,” said Xian Chan, chief investment officer for wealth management as HSBC. “We are positive on the consumer discretionary sector which stands to benefit from the ongoing services recovery.”

The S&P 500 rose 0.2 per cent at the opening bell, while those tracking the tech-heavy Nasdaq Composite climbed 0.4 per cent.

The regional Stoxx 600 rose 0.3 per cent, while the UK’s FTSE 100 gained 0.2 per cent, led by major energy producers such as BP and Royal Dutch Shell, as investors bet on the economic benefits of the lifting of Covid-19 restrictions despite the spread of the Delta variant of the virus.

“We think that the European market is really benefiting from euro depreciation,” said Bastien Drut, chief thematic macro strategist at CPR Asset Management. “[Also] there are more cyclical stocks in European markets which benefits more from this reopening.” 

The strong jobs numbers after several months of below-forecast additions indicate the US economy is healing from the depths of the pandemic, when lockdown measures restricted movement and closed businesses. While policymakers at the US Federal Reserve have said they are willing to let inflation run above target temporarily, the sharp increase in job numbers will fuel speculation that the central bank may feel pressure to rein in its pandemic-era support for the economy.

“I think it’s even more than usual a very important data point that could be very key for the coming weeks,” said Sophie Chardon, cross-asset strategist at Lombard Odier. “Non-farm payroll data could be one of the triggers, that’s why [markets] are in wait-and-see mode.”

In June, Fed officials revised their growth and inflation forecasts for the US upwards, bringing forward projections for the first post-pandemic rate rise by a year to 2023.

While some decision makers at the US central bank are beginning to talk more openly about the need to prepare for the gradual winding down of pandemic-era stimulus, in the eurozone the European Central Bank has maintained a more dovish stance, reflecting the different paces of recovery on both sides of the Atlantic.

“The European Central Bank is always very dovish, and you can see that there is a lot of pressure on the Fed to normalise its policy and taper its asset purchases,” CPR’s Drut said. “The path will continue to diverge in coming quarters.”

Globally, bond yields fell slightly. US 10-year Treasuries dipped 0.02 percentage points to 1.455 per cent, while the yield on 10-year German Bunds dropped by the same amount to minus 0.223 per cent.

Oil prices dipped after Thursday’s news that the Opec+ meeting of key oil-producing nations failed to reach an agreement on supply policy and production levels, with a decision expected on Friday. Nevertheless, Brent crude, the global oil benchmark, and the US benchmark West Texas Intermediate have remained over $75 a barrel.