Stocks up, dollar down as US jobs data soothe rate hike fears

LONDON: Stocks, oil and gold rallied while the dollar fell on Friday, as a weaker-than-expected US jobs report eased concerns that a fast recovery in the world's biggest economy could prompt the Federal Reserve to shut off the stimulus taps sooner.

The hotly anticipated US non-farm payrolls data released at 1230 GMT showed 559,000 jobs created in May, a sharp increase in hiring from April but below the 650,000 expected from a Reuters poll of analysts.

The pan-European STOXX 600 index rose 0.15% by 1347 GMT, trading just below its record high touched earlier this week, and US stock futures extended gains with S&P 500 e-minis up 0.58%.

A stronger-than-expected reading would have heightened worries that the robust economic recovery could push the Fed to contemplate paring back its bond buying and raising interest rates.

"It's still a strong number. The way I see it is it's lacking a certain wow factor that the market was expecting, and that can help keep rates a bit lower here and the curve a bit steeper," said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.

Market whispers had been for a higher number, he added, that would somewhat counterintuitively have driven stocks down on fears the Fed would tighten policy earlier than expected.

The dollar index fell 0.47% after the data release, down from a multi-week high hit earlier on Friday.

The greenback had rallied on Thursday, notching up its biggest daily gain in a month, after weekly US jobless claims fell below 400,000 for the first time since the pandemic started more than a year ago and private payrolls increased by significantly more than expected.

The 10-year Treasury yield held at 1.625%, while euro zone bond yields edged lower with investors looking for cues about the US Federal Reserve's bond-buying tapering discussions.

President Joe Biden will meet with the main Republican negotiator on infrastructure spending later on Friday, as they try to hash out a deal that can satisfy both camps.

Airlines stocks meanwhile suffered, with British Airways-owner IAG, Wizz Air and easyJet slipping between 1% and 2% after Britain added seven countries, including Egypt and Sri Lanka, to its "red list" of destinations that require hotel quarantine on return to England.

TAPER TALK

While Fed officials have consistently said they expect current inflationary pressures to be transitory and for ultra-easy monetary policy to stay in place for some time, they are also increasingly touting the need to at least start talking about a tapering of stimulus.

Investors have been carefully parsing the economic data to gauge whether inflation could prove sticky enough to force the Fed's hand on tapering.

Last month, much-lower-than-expected non-farm payrolls numbers knocked back those expectations, weakening Treasury yields and the dollar, and the pattern repeated on Friday.

Gold rose 1% after a 2% tumble on Thursday, its biggest since February, trading at around $1,892 per ounce by 1356 GMT.

Oil hit $72 a barrel, trading close to a two-year high as OPEC+ supply discipline and recovering demand countered concerns about patchy COVID-19 vaccination rollouts around the globe.

Brent futures rose 71 cents to $72.00 a barrel, after reaching the highest since May 2019 in Thursday's session. US WTI added 77 cents to $69.59 a barrel, the strongest since October 2018.