Investors bet weaker US payrolls spur more Fed interest rate cuts

Global shares rose on Friday as investors bet that news of slower-than-expected US non-farm payrolls jobs growth would give the Federal Reserve more reason to cut interest rates later in the year.

US interest rate futures priced in two cuts of 25 basis points apiece this year, perhaps starting in September, compared with just one cut being forecast before the jobs numbers were released ahead of Wall Street’s opening bell.

The data also sent US stock futures sharply higher, building on an already bullish mood after news of Apple’s record $110 billion share buyback.

A Labour Department report showed nonfarm payrolls increased by 175,000 jobs in April, compared with expectations for an increase of 243,000, according to economists polled by Reuters. The unemployment rate stood at 3.9% compared with expectations that it would remain steady at 3.8%.

“What will the Fed make of this? At last there is evidence of some weakness in the US jobs market,” said Neil Birrell, Chief Investment Officer at Premier Miton Investors.

“Rate cuts will move back up the agenda as a result and there is little doubt that markets will take this as good news. While we shouldn’t make too much of single data prints, this could be the start of a positive trend for the Fed,” Birrell said.

The yen recovering from 34-year lows was the focus in Asia, capping a tumultuous week that saw suspected intervention from Japanese authorities, leaving the dollar on the back foot. Asian shares surged to their highest in 15 months on Friday, led by tech and Hong Kong stocks.

Oil was firmer on the prospect of Opec+ continuing output cuts, but crude benchmarks were headed for the steepest weekly losses in three months on demand uncertainty and easing tensions in the Middle East reducing supply risks.

The MSCI All Country stock index extended gains to 0.4% after the US data, though still down about 3% from its record high in March.

In Europe, the STOXX index of 600 companies was up 0.8%, the US data helping it to build on earlier gains.

The Fed’s signal this week that the next move in rates would be down has been well received by many investors, helping to put a floor under markets that were also being aided by corporate earnings coming in above expectations in the United States, said Eren Osman, wealth management director at Arbuthnot Latham.

“There is an increasingly valid case to be put forward that you can see economic activity and earnings growth remaining resilient in a higher interest rate environment,” Osman said.

“I think it will take a little while for many to get used to that after coming out of a such a low interest rate environment for a long period,” Osman added.

Markets in Japan and mainland China were closed on Friday. MSCI’s broadest index of Asia-Pacific shares outside Japan surged to 550.49, its highest since February 2023.

Hong Kong’s Hang Seng Index rose 1.36%, on track for a ninth consecutive day of gains and on its longest winning streak since January 2018.

The spotlight for much of the week has been on the yen , which was trading at 152.155 per dollar on Friday, having started the week by touching a 34-year low of 160.245 on Monday.

In between, traders suspect the authorities stepped in on at least two days this week and data from the Bank of Japan suggests Japanese officials may have spent roughly $60 billion to defend the beleaguered yen, leaving trading desks across the globe on high alert for further moves by Tokyo.

A series of Japanese public holidays as well as Monday’s holiday in Britain - the world’s biggest FX trading centre - could present a possible window for further intervention by Tokyo. Japanese markets are also closed on Monday.

The dollar index, which measures the US currency against six peers, was last at 104.68, down 0.6% on the day, and facing its worst weekly performance since early March.

In commodities, US crude rose 0.3% to $79.17 per barrel and Brent was at $83.91, up 0.3% on the day.

Spot gold reversed earlier losses to edge up to $2,304 an ounce. Investors hunkered down on Friday ahead of key US non-farm payroll numbers that could shift bets on when the Federal Reserve will start cutting rates.

US stock index futures gained after news of Apple’s record $110 billion share buyback, but the jobs figures due at 1230 GMT are set to shape investor sentiment across assets.

The yen recovering from 34-year lows was the focus in Asia, capping a tumultuous week that saw suspected intervention from Japanese authorities, leaving the dollar on the back foot. Asian shares surged to their highest in 15 months on Friday, led by tech and Hong Kong stocks.

Oil edged higher on the prospect of OPEC+ continuing output cuts, but crude benchmarks were headed for the steepest weekly losses in three months on demand uncertainty and easing tensions in the Middle East reducing supply risks.

The MSCI All Country stock index was up 0.3% at 762.72 points, down 3% from its record high in March as investors pushed back the timing of central bank rate cuts in the face of stickier-than-expected inflation.

Agencies