Markets cheer after US debt concerns ease
Stock Markets Rise as US Avoids Catastrophic Debt and Traders Respond Positively to Reports of US Job Rise
Equity markets rallied yesterday as the US avoided catastrophic debt default and traders reacted positively to a report showing an increase in US jobs.
The FTSE 100 rose 1.6 percent, or 117.01 points, to 7607.28, reversing losses earlier this week. It was the biggest one-day increase since March.
US markets also led the way, with the S&P 500 and the Dow Jones each rising more than 1 percent – despite fears the strong jobs report could increase pressure for further rate hikes in the US.
Investors breathed a sigh of relief after the US Senate approved a deal that lifted the £25 trillion ceiling on US national debt. A deadlock over the debt ceiling had raised fears of an unprecedented bankruptcy of the world’s largest economy – a catastrophe that would have sent shockwaves around the world.
The deal was backed by Senate Majority Leader Chuck Schumer, who put an end to those fears and made investors feel more positive.
Support: The deal was supported by Senate Majority Leader Chuck Schumer, which made investors feel more positive
With the US debt cleared, attention turned to monthly employment data, which showed 339,000 new jobs in May. But the figures also showed unemployment, which was at a 53-year low of 3.4 percent, but rose sharply to 3.7 percent. They also revealed that wage growth was cooling.
The mixed data left an uncertain picture of where the Federal Reserve will go, amid growing speculation that it will pause its rate hikes.
Stronger-than-expected job growth would be seen as an increase in inflationary pressures, something that would pressure the Fed to raise again, which in turn would put pressure on borrowers.
Marcus Brookes, chief investment officer at Quilter Investors, said: “The US job market, despite challenging conditions, continues to confuse expectations with more jobs being added to the economy than expected.
“The numbers will probably only add fuel to the fire that the US Federal Reserve will have to raise rates again, despite appearing ready to hit pause earlier this year.”
The dollar was boosted as the pound fell nearly a penny to just above $1.24.
But some observers were less aggressive. Nathaniel Casey, asset manager Evelyn Partners, said: “Typical signs of normalizing wage growth should allow the Fed to resist a rate hike in June, provided inflation continues to slow.”