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Yields jump, equities waver after U.S. jobs report

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NEW YORK/LONDON — Benchmark Treasury yields jumped on Friday on fears of rising inflation but some equity markets rose after a weak U.S. jobs report likely pushed back the timetable for when the Federal Reserve starts to reduce its massive support of the economy.

U.S. employers created the fewest jobs in seven months in August as the COVID-19 Delta variant hurt the leisure and hospitality sector, but a 0.6% increase in wages and other data showed underlying strength in the economy.

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Nonfarm payrolls increased by 235,000 in August, well short of the 728,000 forecast by economists in a Reuters poll. But the unemployment rate fell to 5.2% from 5.4% in July, the Labor Department said.

The Dow and European indices fell as the slowdown in U.S. jobs growth raised questions about the pace of the recovery. But the tech-heavy Nasdaq and MSCI’s U.S.-centric all-country world index edged higher after the report calmed fears of an imminent tapering of the Fed’s stimulative bond-buying program.

A taper announcement is off the table in September after the jobs report, said Lee Ferridge, North American head of multi-asset strategy at State Street Global Markets.

“Support from the Fed for these markets is going to persist. Taper starts later rather than sooner. That’s positive for equities, that’s positive for risk,” he said.

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“As long as the Fed is printing, then that means that the equity markets are supported by the whole QE liquidity argument,” Ferridge said.

MSCI’s all-country world index, which is 60% U.S. equities, rose 0.14% and the tech-heavy Nasdaq gained 0.13%. Both indices were on pace to set record closes.

The S&P 500 index edged up 0.03%, led by information technology and communication services, but most sectors were lower. The Dow Jones Industrial Average fell 0.11% and the broad STOXX Europe 600 index of pan-regional stocks closed down 0.56%.

Not all was bleak. Euro zone business activity remained strong last month, IHS Markit’s survey showed, suggesting the bloc’s economy could be back to pre-COVID-19 levels by year-end despite fears about the Delta variant.

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The European Central Bank meets next week amid calls from several hawkish members to slow its pandemic-era asset purchase program. A Reuters poll sees the bank announcing a cut to its asset purchases, given a recent spike in inflation.

Yields on the benchmark 10-year Treasury note rose 2.7 basis points to 1.3207% as the U.S. labor report showed a jump in hourly earnings, raising inflation fears.

The dollar index dropped to a low of 91.941, its lowest level since Aug. 4, and was last down 0.20% at 92.0350.

The European single currency edged up 0.11% to 1.1889. Markets are starting to react to the potential for more sustained euro zone inflation and reduced stimulus from the ECB.

JAPAN JUMPS, CHINA EASES

Japanese shares jumped after officials said Prime Minister Yoshihide Suga would step down, setting the stage for a new premier after a one-year tenure marred by an unpopular COVID-19 response and rapidly dwindling public support.

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Japan’s TOPIX stock index rose to a 30-year high and was last up 1.61%, with the Nikkei gaining 2%. Asian shares are still off their peaks from earlier in the year however, and lagging those elsewhere.

Meanwhile, Chinese blue chips were down 0.5% and Hong Kong was off 0.72% after activity in China’s services sector slumped into sharp contraction in August, a private survey showed on Friday, hurt by restrictions imposed to curb the COVID-19 Delta variant.

Oil prices slipped on the U.S. labor report showing a patchy recovery from the pandemic, but losses were capped by concerns U.S. crude supply would continue to be limited in the wake of Hurricane Ida, which cut offshore U.S. production.

Brent crude futures fell 42 cent to settle at $72.61 a barrel. U.S. crude slid 70 cents to settle at $69.29 a barrel.

Gold advanced more than 1% to its highest in 2-1/2 months as weak U.S. jobs growth drove the dollar lower and cast doubts on the Fed’s tapering timeline.

U.S. gold futures settled 1.2% higher at $1,833.70 an ounce.

(Additional reporting by Alun John in Hong Kong; Kevin Buckland in Tokyo; Editing by Dan Grebler and Andrea Ricci)

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In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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