US stocks finished the week lower after hawkish comments from the Federal Reserve signalled that interest rates will rise higher than previously expected, and a jobs report indicated the labour market is still running hot.
Although the Nasdaq Composite closed 1.3 per cent higher on Friday, its 5.6 per cent drop for the week was the biggest decline since late January. Concerns over a higher “endpoint” for interest rates weighed on the technology stocks that comprise the index and are more sensitive to elevated borrowing costs.
The S&P 500 rose 1.4 per cent on Friday to trim its drop over the past five sessions to 3.4 per cent, the biggest weekly decline since late September.
Investors sold stocks after the US central bank implemented its fourth consecutive 0.75 percentage point rate rise on Wednesday as it attempts to bring inflation down to its target of 2 per cent. Fed chair Jay Powell’s warning that recent data suggest “the ultimate level of interest rates will be higher than expected” sent stocks lower and led to a sharp jump in US short-term government bond yields.
Investors also scrutinised data released on Friday that show the US added 261,000 jobs in October, exceeding Wall Street expectations of 200,000. The unemployment rate, however, increased by 0.2 percentage points to 3.7 per cent in October, higher than the 3.6 per cent predicted.
Wages, meanwhile, rose 0.4 per cent from the previous month, the report showed — higher than the 0.3 per cent rise that was forecast.
Quincy Krosby, chief global strategist at LPL Financial, said the jobs report bolstered the argument for a smaller 0.5 percentage point rise at the Fed’s December meeting and “helped the equities market” because higher unemployment figures implied payroll numbers are “shifting lower but not collapsing”.
The US dollar index, which tracks the currency against six peers, fell 1.9 per cent on Friday. The move came after Susan Collins and Thomas Barkin, heads of the Boston and Richmond Fed branches, respectively, said the central bank should start considering a slowdown in its interest rate rises.
The yield on the two-year Treasury, which is particularly sensitive to short-term monetary policy expectations, declined from its Thursday peak, when it reached its highest level since mid-2007. The yield on the note fell 0.04 percentage points to 4.66 per cent on Friday.
Chinese stocks soared, extending their weekly gains on hopes that Beijing would change its longstanding zero-Covid policy. The CSI 300 index of Shanghai and Shenzhen-listed shares gained 3.3 per cent.
Industrial metal prices skyrocketed on the news. Copper, a barometer of health for the global economy, powered 8 per cent higher to breach $8,000 a tonne for the first time in two months. Other base metals nickel, zinc and tin also jumped up by more than 5 per cent after sliding lower since March on macroeconomic fears that have trumped supply concerns. Gold gained 2.1 per cent to $1,676.60 per troy ounce.
That also spurred gains for mining groups Anglo American, jumping 11.1 per cent, and Rio Tinto, up 7.6 per cent in London. The FTSE 100 rose 2 per cent. In Europe, the regional Stoxx Europe 600 added 1.8 per cent.
Reports that US regulators had completed a review of Chinese audit reports earlier than expected added to investor optimism around Chinese stocks, with the Hang Seng in Hong Kong closing up 5.4 per cent.
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