The rally followed the June employment report, which showed non-farm payrolls rising by 57,000, well below market expectations of roughly 110,000. The unemployment rate eased to 4.2 per cent, but the decline was clouded by a fall in labour force participation to 61.5 per cent, suggesting that fewer people were actively seeking work rather than a broad strengthening in hiring.
The data shifted the tone across markets. Futures linked to the federal funds rate priced a 46.8 per cent probability that the Federal Reserve will leave rates unchanged at its September 15-16 meeting, up from 35.8 per cent a day earlier. Traders also scaled back expectations of a move at the July meeting, strengthening the view that policymakers may have more time to assess inflation before tightening again.
Europe led the global equity advance, with the STOXX 600 touching a record high and gaining about 0.6 per cent on Friday. The index was on course for a weekly rise of around 2.6 per cent, its strongest performance since mid-May. Broader world shares rose 0.4 per cent and were set for a weekly gain of nearly 2 per cent, reflecting a wider return of confidence after weeks of concern over inflation, oil prices and technology valuations.
The market response underlined the delicate balance now shaping investor sentiment. A softer labour market reduces pressure on the Federal Reserve to raise borrowing costs, which supports equities, especially sectors sensitive to interest rates. At the same time, the weakness was not severe enough to trigger immediate fears of recession, allowing investors to treat the data as a moderating signal rather than a warning of economic stress.
The labour report showed uneven conditions beneath the headline figure. Professional and business services added 36,000 jobs, social assistance gained 25,000, and health care added 22,000. Leisure and hospitality lost 61,000 jobs, reflecting weaker seasonal hiring. Payroll gains for April and May were also revised down by a combined 74,000, reinforcing the impression that hiring momentum has cooled more than earlier figures suggested.
Average hourly earnings rose 0.3 per cent in June and were up 3.5 per cent from a year earlier. The wage data kept inflation concerns alive, even as the hiring slowdown reduced the urgency for another rate increase. The Federal Reserve’s target range for the federal funds rate remains at 3.50 per cent to 3.75 per cent after policymakers left rates unchanged at their June meeting.
Gold benefited from the shift in rate expectations, climbing about 1 per cent to above $4,160 an ounce and heading for a weekly gain of around 1.8 per cent. Lower expectations of rate increases tend to support gold by reducing the opportunity cost of holding the metal. The dollar paused after rising earlier in the week, with the euro trading near $1.144 and sterling around $1.335.
Asian markets also found support from stronger regional activity indicators and a rebound in chip-related shares. South Korea’s KOSPI rose sharply, while Japan’s Nikkei gained about 1.5 per cent. Business surveys showed Japan’s services sector returning to expansion in June, while China’s services activity continued to grow, though at a slower pace. Overseas demand for Chinese services rose at the fastest rate in 20 months, offering a counterweight to concerns about weak domestic demand.
Technology shares remained a source of volatility. Semiconductor and artificial intelligence-linked stocks had come under pressure on Wall Street earlier in the week as investors questioned stretched valuations. The rebound in Asia suggested that the AI trade has not lost support, but the rotation into financials, health care and European equities showed investors are becoming more selective after a powerful run in growth stocks.
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