Global stocks cheer potential dovish Fed; dollar gains

NEW YORK – U.S. shares inched higher and European shares rallied on Friday after weaker-than-expected U.S. jobs data gave the Federal Reserve more leeway to stand pat on interest rates, while the dollar gained and longer-dated Treasury yields edged up.

U.S. nonfarm payrolls rose by 151,000 jobs in August after an upwardly revised 275,000 increase in July, with job cuts in manufacturing and construction, the Labor Department said. Economists polled by Reuters had forecast payrolls rising 180,000 last month.

Fed funds futures on Friday suggested traders saw a 24-percent probability of a Fed rate hike later this month, roughly unchanged from Thursday’s probability, according to CME Group’s FedWatch program.

Rate hike probabilities for September and December had risen after last Friday’s remarks by Fed Chair Janet Yellen that the case for raising rates had strengthened in recent months.

U.S. and European shares cheered the jobs figures’ implication that the Fed may wait until December to act.

“This mixed jobs report puts the Fed in a tricky situation. It’s not all-around strong enough to assure a September interest rate hike. But it’s solid enough to engender a heated policy discussion,” said Mohamed El-Erian, chief economic adviser at Allianz, in Newport Beach, California.

MSCI’s all-country world equity index .MIWD00000PUS was last up 2.25 points, or 0.54 percent, at 419.6.

The Dow Jones industrial average  was last up 25.72 points, or 0.14 percent, at 18,445.02. The S&P 500 was up 3.33 points, or 0.15 percent, at 2,174.19. The Nasdaq Composite  was up 5.12 points, or 0.1 percent, at 5,232.33.

Europe’s broad FTS Eurofirst 300 index  closed up 2.06 percent, at 1,378.94.

Despite the jobs data not clearly reinforcing a September rate hike, the dollar gained on the prospect of a December rate hike, erasing losses sustained immediately after the data.

The dollar index .DXY, which measures the greenback against a basket of six major currencies, was last up 0.2 percent at 95.848 after hitting a one-week low of 95.189.

Treasuries prices initially rallied on the U.S. jobs data, with two-year yields US2YT=RR falling to their lowest in 10 days of 0.746 percent and benchmark 10-year yields hitting a one-week low of 1.543 percent US10YT=RR.

Yields reversed that drop later in the session, with two-year yields last little changed at 0.798 percent and 10-year yields last at 1.611 percent, compared with a 10-year yield of 1.570 percent late Thursday.

“It was obviously lower than expected, which goes counter to (the Fed raising rates) in September, but it doesn’t necessarily count them out for the year,” said Ellis Phifer, market strategist at Raymond James in Memphis.

The dollar’s initial weakness helped prompt gains in oil prices, though crude futures remained on track for a big weekly loss on glut concerns.

Brent crude LCOc1 was last up $1.44, or 3.17 percent, at $46.89 a barrel. U.S. crude CLc1 was up $1.38, or 3.2 percent, at $44.54 per barrel.

Spot gold prices XAU= were last up $8.29, or 0.63 percent, at $1,321.76 an ounce.

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