Stocks rebound after US jobs numbers surprise

STOCK MARKETS rebounded yesterday after US non-farm payroll data surprised investors on the upside.

The recent equity rally had gone into reverse on Thursday after European Central Bank president Mario Draghi failed to announce an immediate bond-buying programme.

However, global stock markets resumed their rally once again yesterday after a report showed that the world’s largest economy added more jobs in July than forecast.

Although the ECB kept rates unchanged and dashed hopes of swift action to ease the borrowing costs of Spain and Italy on Thursday, it did suggest that, under certain circumstances, it would consider purchasing bonds.

“There are a lot of people out there taking a reassessment of what Draghi said,” said Lutz Karpowitz, currency strategist at Commerzbank.

Italian and Spanish two-year notes jumped yesterday, outperforming the nations’ 10-year bonds. Mr Draghi said on Thursday any bond purchases would focus “on the short end of the yield curve”.

The yield on Spain’s two-year note dropped 88 basis points to 3.96 per cent, extending this week’s decline to 135 basis points. The country’s 10-year yield fell 32 basis points to 6.85 per cent, below the 7 per cent level that prompted bailouts of Ireland, Greece and Portugal.

Italy’s two-year yield dropped 61 basis points, or 0.61 percentage point, to 3.13 per cent. The nation’s 10-year yield fell 28 basis points to 6.05 per cent.

“There is a degree of thinking that maybe what Draghi was saying was not that negative,” said Achilleas Georgolopoulos, a fixed-income strategist at Lloyds Banking Group in London. “He said if you need help, request it and the ECB will help you, if you meet the conditions.”

Commenting on the marked reversal in investor sentiment yesterday, a Dublin trader said it was almost inevitable that markets would be disappointed by whatever Mr Draghi said or did on Thursday, given how high expectations were set after the ECB chief pledged last week to do whatever it took to save the single currency.

When he failed to announce “the whole shopping list” of measures that markets had anticipated, sentiment was knocked. “[Thursday] was going to be disappointing. It was inevitable,” he said.

As for the rapid return of a “risk-on” attitude yesterday, the trader said investors are struggling to find somewhere to put their money to work. “Yields in the so-called safe countries are negligible or negative,” he said.

The euro surged yesterday, rising as high as $1.2386.

Oil prices also rose sharply, with Brent crude futures hitting a 10-week high, after the US non-farm payrolls report showed employers added more jobs than expected in July.

US employers added 163,000 jobs last month, the most in five months.

The slight rise in the unemployment rate, however, had some analysts and traders saying it was likely to keep intact speculation of further monetary stimulus for the economy from the US Federal Reserve. – Additional reporting Bloomberg, Reuters