US stocks rallied and Treasuries slid sharply on Friday after an unexpected rise in American employment data stunned investors and fuelled hopes that the world’s biggest economy was beginning to recover from its coronavirus shock.
The S&P 500 followed European stocks higher, rising 2.8 per cent in early-afternoon trading following the release of data that showed that non-farm payrolls rose by 2.5m last month. The tech-heavy Nasdaq rose 2 per cent to trade above its record closing high.
Consensus expectations had been for a loss of 7.5m jobs, which would have put the unemployment rate close to 20 per cent, not far off the Great Depression peak of 24.9 per cent. But the new jobs pushed the rate down to 13.3 per cent in May, from 14.7 per cent in April.
As optimism boosted shares, investors sold 10-year US Treasury bonds, leading yields to rise above 0.9 per cent, the highest level since mid-March.
The sell-off in longer-dated US bonds, seen throughout the week, intensified. The difference in yields between 5-year and 30-year Treasuries rose to 124 basis points, the most since December 2016.
Dan Ivascyn, chief investment officer at Pimco, said the figures confirmed to investors that the US economy was recovering and powering a strong rebound across financial markets, including in shares of hard-hit banks and industrial goods groups.
“It is what you want to see in a recovery process, broad participation even in weak, fragile parts of the market,” he said.
Seema Shah, chief strategist at Principal Global Investors, which has $437bn of assets under management, said the jobless numbers were “an incredible turnaround” from the previous month.
“Today’s data suggests that the US economy is more resilient than expected,” she said. “It also raises the question: does the US really need as much policy support as it is receiving?”
Friday’s rise means the US S&P 500 benchmark stock index has now advanced more than 40 per cent from a closing low in mid-March. Optimism for a reopening of the economy after lockdowns has been a driving force, supported by a host of stimulus measures from the US government and central bank.
In Europe, the US jobs data added to the investor enthusiasm created by the European Central Bank’s expanded stimulus package on Thursday. The bank said it would buy more bonds into next year.
The ECB’s action follows similar moves by central banks in the US, Japan and UK. Together with China’s central bank, their combined balance sheets have risen from $5tn in 2007 to more than $23tn, according to research group Haver Analytics.
The continent-wide Stoxx Europe 600 index was up 2.5 per cent, helped by a 2.3 per cent gain in London’s FTSE 100. Frankfurt’s Xetra Dax jumped 3.4 per cent, which left the benchmark up 50 per cent in just over 50 sessions.
Travel and leisure stocks were the largest gainers, albeit from low levels, as countries began to form agreements to reopen their borders. Europe’s travel and tourism sector, which has been hit hard by coronavirus, is down almost a third this year.
Some analysts are confident the rally has plenty of momentum. Bank of America said the Stoxx 600 was set to rise a further 10 per cent by the third quarter of this year as Europe’s economies returned to activity. That would take European equities close to pre-pandemic levels.
Greek and Italian government borrowing costs stabilised at 1.68 percentage points, having fallen to their lowest levels in nearly three months on Thursday.
“Policymakers’ efforts to contain strains in the currency union will remain a key driver of eurozone assets this year,” said analysts at Capital Economics.
The bullish mood led to investors moving out of the relative safety of German government bonds for a second straight session, sending the yield on the 10-year Bund above minus 0.3 per cent, its highest level in two months.
The euro fell against the US dollar, after gaining almost 4 per cent in eight days to reach its highest point since early March.
In Asia-Pacific equities, Hong Kong’s Hang Seng added 1.7 per cent, taking its advances for the week to 7.9 per cent, its biggest weekly gain in more than five years.
Meanwhile, Japan’s benchmark Topix rose 0.5 per cent, Australia’s S&P/ASX 200 gained 0.1 per cent and China’s CSI 300 index of Shanghai and Shenzhen-listed stocks added 0.5 per cent.
Oil prices rose after Opec and its allies agreed to meet over the weekend to discuss the possibility of extending production cuts. Brent crude, the international benchmark, rose more than 5 per cent to trade above $42 a barrel, while West Texas Intermediate, the US marker, gained 5.2 per cent at $39.36 a barrel.
Additional reporting by Martin Arnold in Frankfurt and Eric Platt in New York