Wall Street stocks rally after jobs data point to robust US economy

US stocks advanced on Friday, with the S&P 500 index recording its biggest one-day rise since April, after traders cheered the latest jobs report and the passage of the debt ceiling bill in the Senate.

The Wall Street benchmark S&P 500 rose 1.5 per cent to its highest level since August, marking its third straight week of gains with a 1.8 per cent increase.

The tech-heavy Nasdaq Composite added 1.1 per cent to a level last reached in April 2022. Its weekly increase of 2 per cent brought the index its sixth consecutive week of gains.

The Cboe’s Vix index, a measure of stock market volatility which is often referred to as Wall Street’s “fear gauge”, fell to 14.60, its lowest close since February 2020.

Investors started the day on the front-foot after the US Senate on Thursday approved a deal between the White House and congressional Republicans to lift the debt ceiling for two years in exchange for cuts to government spending.

The accord ended a weeks-long political stand-off that risked triggering an unprecedented debt default in the world’s largest economy.

Stocks were further buoyed by data from the US labour department showing non-farm payrolls rose by 339,000 in May, well above the 190,000 consensus estimate of economists polled by Reuters, an unexpected sign of labour market strength. The unemployment rate rose to 3.7 per cent from 3.4 per cent in April and wage growth edged down on an annual basis to 4.3 per cent.

“While employment growth was shockingly strong, other data from the establishment painted a more complex picture of the labour market,” Bank of America analysts wrote. “While average hourly earnings are not the best measure of wage growth the trend does suggest some slowing of wage inflation pressures relative to a year ago.”

Still, the headline figure signalled resilience in the US economy, making it more likely that the Federal Reserve will continue to increase interest rates in an effort to bring down inflation.

Markets placed a 29 per cent chance of an interest rate increase in June, according to Refinitiv, slightly up from about 25 per cent on Thursday. The likelihood of a quarter-point increase by July was priced in.

“The numbers today are likely only going to add fuel to the fire that the Federal Reserve has to raise rates once again, despite earlier this year appearing to be ready to press pause on the hikes,” said Marcus Brookes, chief investment officer at Quilter Investors.

The yield on the US two-year Treasury, which is more sensitive to monetary policy expectations, was up 0.16 percentage points at 4.50 per cent after the release of the jobs report. The yield on the 10-year was up 0.07 percentage points at 3.70 per cent. Bond yields rise as prices fall.

The dollar, which moves when investors expect higher rates, added 0.5 per cent against a basket of six peer currencies.

The pan-European Stoxx 600 closed 1.5 per cent higher, while London’s FTSE 100 added 1.6 per cent. France’s Cac 40 gained 1.9 per cent.

The shares of London-listed Dechra rose 7.6 per cent after the veterinary pharmaceuticals company agreed a £4.5bn buyout by Sweden’s EQT, in what would be one of the biggest UK private equity deals of the year.

Markets in Asia rallied. Hong Kong’s Hang Seng index led the region with a rise of 4 per cent, as internet and tech stocks led a rebound.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 1.4 per cent. South Korea’s Kospi gained 1.3 per cent and Japan’s Topix was up 1.6 per cent.

Oil prices rose, with West Texas Intermediate, the US marker, adding 2.1 per cent to trade at $71.56 per barrel, while international benchmark Brent crude rose 2.3 per cent to $75.98.