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GLOBAL MARKETS-Stock markets advance after US employment report as bonds fear the Fed

By Hideyuki Sano

TOKYO, Apr 5 (Reuters) – Global stocks rose to a month-and-a-half highs on Monday after a rebound in US employment was reported, while US bonds came under pressure on concerns that the Federal Reserve may raise interest rates sooner than it has indicated.

US S & P500 futures were trading 0.3% higher, maintaining most of the gains made during a truncated session on Friday, although Nasdaq futures lagged, trading almost flat.

In Asia, the Japanese Nikkei Index was up 0.8%, while the MSCI was down slightly as markets in China are closed for the Qingming Holiday and Australia for Easter Monday.

The MSCI World Index was nearly flat, but close to its highest level since late February, and is already seeing a record set that month, although the flow of trading remains slow, with much of Europe on vacation.

The US Department of Labor said on Friday that nonfarm payrolls increased by 916,000 jobs last month, the largest increase since last August.

This figure was much higher than the average forecast of economists, which was 647,000, and was closer to the one million figure with which some of the markets speculated. The February data was also revised up to 468,000 new jobs instead of the 379,000 previously reported.

“There will be further improvements in April as restaurants have started to reopen. People expected economic normalization to come sooner or later, but its pace seems to be picking up,” said Koichi Fujishiro, senior economist at Dai-ichi Life Research.

Although employment remains 8.4 million jobs below its peak in February 2020, the acceleration of the recovery suggests that all jobs lost during the pandemic may recover by the end of next year.

In turn, the prospect of a return to full employment is raising questions about whether the Fed can keep its promise to hold interest rates until 2023.

Markets are uneasy about this possibility, and Fed fund futures are already pricing in a rate hike by the end of next year.

Many traders also expect the Federal Reserve to study the possibility of reducing its bond purchases this year, although Fed officials have said they have not yet discussed the issue.

“It will be impossible for the Federal Reserve not to discuss reducing bond purchases in the fall,” said Kozo Koide, chief economist at Asset Management One, noting that US President Joe Biden’s infrastructure spending plan is likely to have been approved by then.

The two-year US Treasury yield rose to 0.186%, close to its eight-month high of 0.194% hit at the end of February.

Longer-term bond yields were also up, with 10-year bonds at 1.725% in Asia on Monday, extending their rise that began on Friday after the jobs report.

Strong employment data helped prop up the dollar, which was trading at 110.65 yen, not far from the one-year high of 110.97 reached Wednesday. The euro stood at $ 1.1752.

Gold fell 0.4% to $ 1,724.70.

As for crypto assets, ether was down 1.7% to $ 2,040.21 from Friday’s all-time high of $ 2,144.99. Bitcoin was down 0.9% to $ 57,704.

Oil prices eased, cutting back on the strong gains recorded in the previous session, driven by OPEC + ‘s decision to gradually reduce some of its production cuts between May and July.

“Although the market initially rose on the news, it will ultimately be an increase in production,” said Tatsufumi Okoshi, senior commodities analyst at Nomura.

The decision came after the new US Administration asked Saudi Arabia, the world’s leading oil exporter, to keep energy within reach of consumers.

US energy companies also added the highest number of oil rigs in a week since January 2020, as rising oil prices in recent months have pushed oil companies back to the fields.

US crude futures were down 1.4% at $ 60.62 a barrel, while Brent was down 1.4% at $ 63.95.

(Reported by Hideyuki Sano; edited by Gerry Doyle, translated by Michael Susin at the Gdansk newsroom)

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