U.S. Stocks Rally With Dollar on Economy Optimism; Crude Falls

Story by Bloomberg
Written by Jeremy Herron and Joseph Ciolli

U.S. stocks surged the most in almost three months and the dollar rebounded as jobs data reinforced optimism that the economy is robust enough to withstand higher interest rates.

The Standard & Poor’s 500 Index rallied 2 percent and the Dow Jones Industrial Average surged 370 points. The greenback jumped after its steepest drop since March as jobs data that topped estimates kept the odds for a rate increase this month above 75 percent. Treasuries rose with gold on speculation any subsequent hikes will be gradual. Oil plunged to $40 a barrel.

The payrolls report underscored Fed Chair Janet Yellen’s contention that the American economy can withstand higher interest rates this year. Equities extended gains after Mario Draghi signaled the European Central Bank will add to stimulus if needed, a day after the institution roiled markets by disappointing investors with the scale of expanded monetary support.

The employment report “ought to clinch it for the Fed in terms of liftoff in December,” Phil Orlando, who helps oversee $360 billion as chief equity market strategist at Federated Investors Inc. in New York., said by phone. “We should have a spike after yesterday’s overreaction on the euro and Draghi.”

Friday’s headlines bring to an end three days of economic developments that will help shape the direction of markets into 2016 as the Fed prepares to raise interest rates for the first time in nearly a decade while central banks in Europe and Asia have committed to expanding stimulus if necessary.

Stocks

The S&P 500 rose 2.1 percent at 4 p.m. in New York, erasing a weekly loss. The index fell to a three-week low Thursday after the ECB’s decision sparked a selloff in risk assets. The gauge is down 1.9 percent from its May record.

Employers added more jobs than forecast in November, government data showed Friday, following a surge in October that was bigger than previously reported. The jobless rate held at a more than seven-year low of 5 percent.

“The data implies an improving U.S. economy, which should provide a backdrop for the Fed to raise rates at their upcoming meeting,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “You’ll see the market react positively to this data, erasing some of yesterday’s declines.”

The Stoxx Europe 600 Index retreated 0.4 percent, capping a weekly drop of 3.4 percent, the most since August. Optimism for a strong new round of ECB stimulus helped push the index to a three-month high on Monday. It spent the week through Wednesday hovering near this level, pushing gains from a September low to 13 percent.

Bonds

Treasuries gained as jobs data bolstered expectations the Fed will take its time with additional increases if it raises rates at its Dec. 16-17 meeting. Government debt prices rebounded after two-year yields reached the highest since 2010. The 10-year rate fell four basis points to 2.27 percent.

The figures tell investors that “the Fed won’t go that fast but they’ll still go, so I think the bond market is kind of relieved,” said George Goncalves, head of interest-rate strategy in New York at Nomura Holdings Inc., one of the 22 primary dealers that trade with the Fed.

The 10-year German bund yield rose one basis point to 0.68 percent after jumping by 20 basis points, the most since 2011, on Thursday when the ECB extended its quantitative-easing program without increasing the pace of monthly purchases.

Currencies

The Bloomberg Dollar Spot Index rose 0.4 percent after plunging 1.4 percent Thursday. Gains were tempered by a report showing the trade deficit unexpectedly widened. The index fell 1.1 percent in the week.

"The dollar is trading stronger in reaction to the payrolls data as it gives more justification to a Fed December rate hike," said Eimear Daly, a currency strategist at Standard Chartered Plc in London.

The euro weakened 0.6 percent to $1.0873 after soaring 3.1 percent on Thursday. The currency had slumped about 5 percent this quarter prior to the ECB decision.

Commodities

Oil dropped after the Organization of Petroleum Exporting Countries lifted the group’s production ceiling to 31.5 million barrels a day. Futures fell as much as 3.6 percent in New York. The previous target was 30 million barrels a day.

Oil has slumped since Saudi Arabia led OPEC’s decision last year to maintain production and defend market share against higher-cost rivals. Energy shares in the S&P 500 fell 0.8 percent for the biggest declines, while oil and gas producers in Europe paced losses there.

Gold traders are taking the long view, spurring enough optimism in the market to drive the biggest price gain since April. Bullion futures for February delivery gained 2.2 percent to settle at $1,084.10 an ounce. Prices touched $1,045.40 on Dec. 3, the lowest since 2010.

Emerging Markets

The MSCI Emerging Markets Index fell for a third day to a two-month low, sliding 1 percent and extending the week’s loss to 1.8 percent. Equity gauges in Brazil, China, Turkey, Poland and South Africa dropped at least 1.5 percent.

China’s stocks fell for the first time in five days, with the Shanghai Composite Index retreating 1.7 percent as initial public offerings resumed after a five-month freeze. The gauge advanced 4.3 percent this week through Thursday on speculation the central bank will extend monetary easing