Stock markets rallied yesterday as the US avoided a catastrophic debt default and traders responded positively to a report showing a surge in American jobs.
The FTSE 100 rose by 1.6 per cent, or 117.01 points, to 7607.28, reversing losses earlier in the week. It was the biggest one-day increase since March.
Markets in the US were also ahead, with the S&P 500 and the Dow Jones each climbing by more than 1 per cent – despite fears that the strong jobs report could add to pressure for further US interest rate hikes.
Investors were breathing a sigh of relief after the US Senate approved a deal that lifted the £25trillion ceiling on America’s public debt. A stand-off over the debt ceiling had raised fears of an unprecedented default by the world’s biggest economy – a catastrophe that would have created global shock waves.
The deal was backed by Senate leader Chuck Schumer, which ended those fears and left investors feeling more positive.
Support: The deal was backed by Senate leader Chuck Schumer, which left investors feeling more positive
With the US debt hurdle cleared, attention turned to monthly employment figures, which showed 339,000 jobs were added in May. Yet the figures also showed unemployment, which had been at a 53-year low of 3.4 per cent, jumping sharply to 3.7 per cent. They also revealed that wage growth was cooling off.
The mixed data left an uncertain picture about where the Federal Reserve will go next amid growing speculation that it will pause its interest rate hikes.
Stronger-than-expected jobs growth would be seen as adding to inflation pressures, something that would put pressure on the Fed to hike again, in turn putting pressure on borrowers.
Marcus Brookes, chief investment officer at Quilter Investors, said: ‘The US jobs market, in the face of challenging conditions, continues to confound expectations with more jobs added to the economy than estimated.
‘The numbers are likely only going to add fuel to the fire that the US Federal Reserve has to raise rates once again despite earlier this year appearing to be ready to press pause.’
The dollar was boosted as the pound slid by nearly a cent to just above $1.24.
But some observers were less hawkish. Nathaniel Casey, at wealth manager Evelyn Partners, said: ‘Tentative signs of normalising wage growth should enable the Fed to resist a June rate hike, providing inflation continues to decelerate.’
