US equities rise after jobs figures top forecasts

Wall Street stocks were on track to hit a new record on Friday after US jobs data exceeded analysts’ expectations, signalling that the labour market in the world’s largest economy is continuing to recover.

Wall Street’s S&P 500 index, which has risen for 15 of the past 17 days to an all-time high, opened up 0.5 per cent. The technology-focused Nasdaq Composite rose 0.4 per cent.

The yield on the benchmark 10-year US Treasury note was stable at 1.525 per cent.

Employers in the world’s largest economy added 531,000 new jobs in October, beating the average forecast of analysts polled by Reuters of 450,000 new hires.

There were “notable job gains” in the pandemic-sensitive leisure and hospitality sectors, the US Bureau of Labor Statistics said, while the number of people who said they were not looking for work because of Covid-19 declined on the prior month.

The Federal Reserve this week confirmed plans to reduce its $120bn monthly bond purchases that have lowered borrowing costs and boosted stock markets since March 2020, but also said it would take a patient stance towards raising interest rates from current record lows.

Despite the positive surprise in October, jobs growth stalled during August and September, adding to expectations of monetary policy remaining supportive.

“We do not think the Fed will start hiking until 2023,” said Hani Redha, managing director at PineBridge Investments. “We’re still a way away from tighter monetary conditions.”

Europe’s regional Stoxx 600, which has closed higher for nine of the past 10 sessions, rose 0.2 per cent. London’s FTSE 100 gained 0.6 per cent.

European and US equities have climbed in recent weeks, as a forecast-beating quarterly earnings season indicated that businesses were managing inflationary pressures by passing price rises on to customers.

US companies on aggregate have increased earnings per share by 43 per cent compared with the same period last year, beating analysts’ estimates for 13 per cent growth, according to research by Barclays. European companies have also widely beaten estimates.

“Going into this reporting season, there was a lot of concern about input price inflation and supply chain disruptions,” said Nick Nelson, head of global and European equity strategy at UBS. “What has really surprised people has been how strong corporate pricing power has been.”

Headline annual consumer price inflation is running at above 5 per cent in the US, while the Bank of England has forecast a rise to similar levels in the UK by next spring, largely driven by supply chain disruptions related to Covid-19 and higher energy prices.

Elsewhere in markets, UK government bonds continued to rally and sterling weakened after the BoE surprised traders on Thursday by voting to keep interest rates at 0.1 per cent despite signalling that it was ready to raise rates.

The yield on the two-year gilt, which moves inversely to the price of the debt and tracks interest rate expectations, dropped 0.06 percentage point to 0.437 per cent after also falling on Thursday by its largest amount since March last year.

The 10-year gilt yield dropped 0.05 percentage points to 0.889 per cent, having traded above 1.07 per cent in advance of the BoE’s decision.

Sterling fell 0.4 per cent against the dollar to $1.34, taking its two-day drop to about 1.8 per cent.