Wall Street up despite US jobs data dashing early rate cut hopes

LONDON: Wall Street stocks edged higher on Friday despite strong US jobs numbers pouring cold water on hopes the Federal Reserve will cut interest rates in the world's top economy in the next few months.

The Fed signalled last month it sees itself beginning to cut interest rates in 2024, which helped stock markets finish the year on a strong note.

But the minutes from its policy meeting last month, released earlier this week, showed they were in no hurry and expected to keep borrowing costs at a two-decade high for some time as they want to make sure they have inflation under control.

That put added importance on the December non-farm payroll data. The tight labour market and wage growth has been seen as posing a threat to the Fed's goal of bringing inflation down to its two percent target. It currently stands at 3.3 percent.

The data showed US job growth surged in December to 216,000 jobs in the final month of 2023, confounding expectations of a slowdown from November.

“The key takeaway from the report is that it wasn’t weak, so the market is going to have to grapple with the notion that the Fed may not cut rates as many times in 2024 as the market had come to expect at the end of 2023,“ said market analyst Patrick O’Hare at Briefing.com.

The stocks rally in the final months of the year came as investors hoped that the Fed could begin cutting rates as soon as in the coming months and more than policymakers had indicated in their forecasts.

Equities have slid in recent days as worries mounted that the rally and rate-cut expectations may have gone too far.

But Wall Street stocks held steady at the open of trading on Friday and then edged higher. The US dollar, which had been trading higher before the release of the jobs data, pulled back.

“The US economy appears to have maintained its resilience into the end of 2023 with little sign of the recession that markets have become increasingly fearful of,“ said CMC Markets analyst Michael Hewson, noting that Wall Street stocks were still set to post their first weekly decline since October last year.

Data showing that US service sector activity grew less than analysts expected in the final month of 2023 tempered concerns that the tightness of the labour market.

European markets were off sharply after data showing eurozone inflation turning higher again last month also raising questions about the timing of interest rate cuts from the European Central Bank.

But they managed to claw back most of those losses, with Frankfurt's DAX index briefly poking into the green.

Meanwhile, shares in French spirits makers tumbled after Chinese authorities launched an anti-dumping probe into brandy imported from the European Union.

China imported more brandy than any other spirit in 2022, with most of it coming from France, according to a report by research group Daxue Consulting.

Shares in Remy Cointreau, which sells cognac and brandy, closed down nearly 12 percent. Shares in Pernod Ricard, maker of Martell cognac, dropped 3.6 percent. Luxury group LVMH, maker of Hennessy cognac, shed 1.4 percent.

Oil prices rose as Danish shipper Maersk announced that it would divert all vessels around Africa instead of using the Red Sea and Suez Canal for the “foreseeable future” after Yemeni rebels attacked its merchant ships.

A spate of recent attacks have prompted the world's leading shippers to pause transit through the route which will add time and cost to transport between Asia and Europe, as well as transit of a considerable amount of oil from the Gulf towards Europe. -AFP