US stocks advance over course of week full of economic data

US stocks notched their biggest weekly gain since mid-June in a five-day period full of economic data that concluded with jobs data suggesting the economy could be on track for “soft landing” despite elevated interest rates.

The S&P 500 gained 0.2 per cent on Friday, to take its weekly advance to 2.5 per cent. The technology-heavy Nasdaq Composite ended fractionally lower, and gained 3.2 per cent across five sessions.

The moves followed the release of the August non-farm payrolls report, which contained several data points shaping investors’ outlook on the domestic economy and interest rates, but suggested a potential “Goldilocks” scenario in which inflation comes under control without causing a recession.

The US economy added 187,000 jobs last month, the Bureau of Labor Statistics reported on Friday. That was more than the 170,000 expected by economists polled by Reuters, but payrolls for June and July were revised lower by a combined 110,000.

The unemployment rate rose to an 18-month high of 3.8 per cent, exceeding economists’ forecasts for it to remain steady at 3.5 per cent.

Meanwhile, average hourly earnings increased 0.2 per cent compared with July, the slowest pace since February, but increased 4.3 per cent on an annual basis. That subdued monthly increase should be encouraging for policymakers given wage growth is an important contributor to inflation.

“This is a Goldilocks sort of report, where you’re getting enough slowing for the Federal Reserve, but it doesn’t look like the consumer’s being hurt too much because they’re getting those wage increases,” said Rob Haworth, senior investment strategist at US Bank Wealth Management.

Yields on US government debt fell to their lowest levels in three weeks immediately after the release of the jobs data, but had turned higher by the afternoon session. The yield on the policy-sensitive two-year Treasury was up 0.02 percentage points to 4.88 per cent while that on the 10-year Treasury rose 0.09 percentage points to 4.18 per cent. Yields rise when prices fall.

Haworth said “August tends to be a complex seasonal-adjusted month” for payrolls figures because of the beginning of the US school year. But last month’s figures may have been additionally affected by more unusual events such as the strikes in Hollywood and the laying off of about 30,000 workers at trucking group Yellow.

The dollar index, a measure of the currency’s strength against a basket of six peers, gained 0.6 per cent.

Some of the market optimism from earlier in the session, linked to the subdued elements of the jobs report suggesting the US central bank could refrain from further interest rate rises this year, were also punctured later by hawkish comments from Loretta Mester, president of the St Cleveland Fed, who said inflation “remains too high”.

The state of the US labour market has become a concern for investors and economists in recent months as the world’s biggest economy continued to add jobs and report higher wages despite the Fed’s aggressive monetary tightening campaign.

Other figures this week pointed to signs the labour market is slowing, with job openings falling in July to the lowest level in more than two years. But helping buoy investor hopes of a soft landing scenario for the economy, the personal consumption expenditure report on Thursday showed measures of inflation ticked up as expected in July and that consumers increased their spending.

The futures market is pricing in a 93 per cent chance that the Fed leaves rates unchanged when it meets later this month.

“The soft-landing scenario will not be dismissed by [Friday’s] job report,” said Florian Ielpo, head of macro at Lombard Odier Asset Managers. “It strikes a nice balance between good and bad news.”

Elsewhere, Europe’s Stoxx 600 index was flat, while Germany’s Dax fell by 0.7 per cent. The moves came a day after eurozone core inflation, which excludes volatile energy and food prices and is closely watched by the European Central Bank, fell to 5.3 per cent in August from 5.5 per cent in July.

London’s FTSE 100 rose 0.3 per cent, led by energy and basic material groups including BP, Shell and Glencore. 

In Asia, meanwhile, China’s CSI 300 gained 0.7 per cent after an unexpected increase in Chinese manufacturing activity last month.

In commodity markets, Brent crude, the international benchmark, settled 2 per cent higher at $88.55 a barrel after Russia signalled support for further supply cuts.