Markets rally after forecast-busting US jobs data

LONDON—Stocks spiked sharply higher on yesterday after forecast-busting US jobs figures reinforced hopes that the recovery in the world’s largest economy is gathering pace at a time when other regions, notably Europe, may be heading back into recession. Figures from the Labour Department showed that employers in the US added 243,000 jobs in January. As well as being the highest in nine months, the gain was around 100,000 more than anticipated. The advance also contributed to a fifth straight fall in the U.S. unemployment rate. At 8.3 per cent, it’s the lowest in three years. The January jobs report was filled with other encouraging data and revisions. Hiring was widespread across many high-paying industries and pay increased, too.

“In terms of the broader outlook, one report does not a trend make but there is little doubt that US economic data continues to surprise on the upside,” said Dan Greenhaus, chief global strategist at BTIG. In Europe, the FTSE 100 index of leading British shares closed 1.8 per cent higher at 5,901.07 while Germany’s DAX rose 1.7 per cent to 6,766.67. The CAC-40 in France ended 1.5 per cent higher at 3,427.92. In the US, the Dow Jones industrial average was up 1.2 per cent at 12,853 while the broader Standard & Poor’s 500 index rose 1.3 per cent to 1,343. The dollar also garnered some strength from the jobs figures as traders scaled back their expectations that the Federal Reserve would be pumping more money into the economy, evidenced also by a fall in Treasuries. The euro was trading 0.2 percent lower at US$1.3119 while the dollar was 0.4 per cent higher at 76.59 yen.

Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., said the Fed would need more evidence before it is comfortable about the durability of the US recovery, especially with the housing market still in a fragile state. Market sentiment has been fairly upbeat so far in 2012, partly on the back of a run of fairly strong US economic data, which has convinced investors that the US economy is over its soft patch from last summer. A non-manufacturing sector survey from the Institute for Supply Management echoed the recent trend, with the main index jumping 3.8 points to 56.8, indicating its fastest pace of expansion in nearly a year.

“This is really good news for overall growth as areas outside of manufacturing cover about 80 per cent of the private sector economy,” said Jennifer Lee, senior economist at BMO Capital Markets. Following the data, BMO has upgraded its first quarter growth forecast for the U.S. to an annualised rate of 2.5 per cent from 2.0 per cent previously. The state of the US economy contrasts with that of Europe, which appears headed for recession. Official figures showed retail sales in the 17-nation eurozone dropped 0.4 per cent during December, in contrast to expectations for an increase of the same amount. The data reinforced expectations that the eurozone contracted during the fourth quarter of the year. Eurostat is due to publish its first estimate for the quarter on February 15.

AP