NEW YORK (AFP) – Stock markets rallied on Friday, closing out the week on a high in the United States (US) following a bumper jobs report and a deal in Congress to avert a potentially catastrophic debt default.
The stronger-than-expected employment data released on Friday morning suggests the US economy remains resilient despite concerted action from the Federal Reserve to suppress demand and bring down high inflation.
The passage of a debt limit deal through both Houses of Congress appears to have eased market fears of a debt default as well, with Wall Street’s “fear gauge” sinking to its lowest level since before the Covid-19 pandemic.
The US dollar strengthened against rival currencies as foreign exchange traders digested the news, while Asian and European stocks also closed in the green on Friday.
“The Senate swiftly approved the new debt ceiling deal in the US prompting relief in the markets,” said AJ Bell investment director
Russ Mould. “A bigger bounce might have been forthcoming had investors not already been very much factoring in an agreement, with only a modest sell-off around the crisis,” he added.
Official data released on Friday showed that the US added 339,000 jobs in May even as the unemployment rate climbed to 3.7 per cent and wage gains fell, signalling a persistently strong labour market.
The debt deal and the “Goldilocks” jobs report – neither too good nor too bad – suggests the US economy “is not facing an immediate risk of a recession”, Edward Jones investment strategist Angelo Kourkafas told AFP.
Monetary policy officials have said a softer labour market and much lower inflation were key to the central bank being able to stop lifting borrowing costs.
Analysts had expected the Fed to relent on more than a year of interest rate hikes aimed at curbing historically high inflation if jobs market numbers cooled.
But Friday’s job data drew different reactions, with some predicting the Fed is now under more pressure to increase interest rates later this month, while others suggested it can still afford to skip a hike this time around.
The higher-than-expected job creation figures “will add pressure on the Federal Reserve to continue its path of increasing rates”, said Srijan Katyal at the international brokerage ADSS.
But Kourkafas of Edward Jones said the “mixed” jobs report “suggests that they could possibly skip a hike in June and deliver more tightening if needed later in the year”.
