US stocks have ended the first week of 2023 higher, climbing strongly on Friday after government data showed the economy added more jobs than economists had expected in December but with weaker growth in employee wages.
The S&P 500 index of blue-chip stocks closed up 2.3 per cent, bringing gains over a holiday-shortened trading week to 1.4 per cent. The tech-focused Nasdaq Composite gained 0.9 per cent across the four sessions, gaining 2.6 per cent on Friday.
Stocks and Treasury bonds rallied after payrolls data on Friday showed continued US employment growth. The job gains decelerated in December from the previous month, however, in a sign that the Federal Reserve’s campaign to combat inflation by increasing interest rates is cooling the economy.
The country added 223,000 jobs in December compared with 256,000 the previous month, according to the labour department. The unemployment rate slipped to 3.5 per cent from a downwardly revised 3.6 per cent. Wall Street economists had expected the world’s largest economy to tack on 200,000 new jobs last month and for the jobless rate to hold steady at an initially reported 3.7 per cent.
Employees’ average hourly earnings rose 4.6 per cent year on year on a seasonally adjusted basis compared with 4.8 per cent the previous month.
“The solid 223,000 gain in non-farm payrolls and drop-back in unemployment to a 50-year low in December will, at face value, do little to ease the Fed’s concerns about resilient core services inflation,” said Andrew Hunter, senior US economist at Capital Economics.
“That said, the softer gain in average hourly earnings suggests wage growth is nevertheless slowing and we still think the labour market will weaken more markedly this year.”
Data from the Institute for Supply Management on Friday also showed contraction in the US services sector for the first time since May 2020, and figures from earlier in the week showed that the manufacturing sector contracted for the second straight month in December.
The yield on the two-year Treasury note, which is sensitive to changes in interest rate expectations, slipped 0.19 percentage points to 4.26 per cent, while the benchmark 10-year yield fell 0.16 percentage points to 3.56 per cent. Bond yields move inversely to their prices.
Markets now expect US interest rates to peak at just over 4.9 per cent in June, down from 5.1 per cent before the publication of December’s jobs figures, with rates forecast to drop below 4.5 per cent at year-end, from a previous estimate of 4.7 per cent before the data were released.
The US dollar fell 1.1 per cent against a basket of six currencies, erasing gains made on Thursday. The greenback has fallen nearly 8 per cent in the past three months.
Elsewhere, the regional Stoxx Europe 600 added 1.2 per cent, London’s FTSE 100 gained 0.9 per cent, France’s Cac 40 rose 1.5 per cent and Germany’s Dax added 1.2 per cent.
The moves in European equity markets came after the flash index of consumer prices across the eurozone fell to 9.2 per cent in December from 10.1 per cent in November. Economists polled by Bloomberg had expected a 9.5 per cent year-on-year rise. Core inflation, which strips out volatile food and energy prices, rose to 5.2 per cent from 5 per cent in November.
Data published earlier this week showed price pressures eased by more than expected in Germany, France and Spain towards the end of 2022, reducing pressure on the European Central Bank to maintain its aggressive stance on inflation.