By Naomi Rovnick and Dhara Ranasinghe
LONDON (Reuters) -Bumper tech earnings supported world stocks on Friday, even as overwhelmingly strong U.S. jobs data lowered expectations of how much the Federal Reserve might cut interest rates this year and set government bond markets back.
MSCI’s global share index was most recently flat, although U.S. stock futures tipped Wall Street’s S&P 500 share index to open 0.2% higher and the tech-heavy Nasdaq 100 to gain 0.5%. Europe’s Stoxx 600 index rose 0.5%.
Shares in Meta Platforms were 17% higher in pre-market trade after the Facebook owner on Thursday evening rewarded investors with its first-ever dividend.
Amazon.com also rose 7% in pre-market dealings after its quarterly results impressed investors, underscoring how moves in big U.S. tech groups with huge valuations can have an outsized influence on market sentiment.
U.S. Treasuries sold off and the dollar firmed, however, after the keenly watched non-farm payrolls report showed the world’s largest economy added hired 353,000 new workers in January, vastly overshooting economists’ forecasts and up from 216,000 in December.
The data came after the Fed on Wednesday pushed back against expectations for an imminent rate cut, with chair Jay Powell projecting sustained economic growth and warning inflation was “still too high”.
“Things will be better than people expect and the rate cuts that are expected are going to come later, or not at all,” Christopher Rossbach, chief investment officer at asset manager J.Stern & Co, said.
“We’re looking at strong (corporate) results and a solid underlying economy.”
After the payrolls data on Friday, money markets projected the Fed would lower its funds rate, currently set in a range of 5.25% to 5.5%, by around 125 basis points by year-end. Before the jobs data, about 145 bps of cuts had been priced.
The yield on the 10-year U.S. Treasury , a benchmark for debt pricing worldwide, was 19 bps higher on the day at 4.194% after the jobs report. Bond yields rise as prices fall.
The yield on the interest-rate-sensitive 2-year Treasury rose 20 bps to 4.194.
Global shares have risen for 12 out of the last 13 sessions as markets conjured up a so-called Goldilocks scenario of easier monetary policy alongside robust economic growth, which some investors warn is unrealistic.
“The (stock) market is on happy pills,” Noel O’Halloran, chief investment officer of KBI Global Investors, said.
“Investors think we are going to have rate cuts, inflation dropping, a miraculous soft landing that doesn’t do any damage to earnings, and areas of the market like technology are priced on the belief the stocks can grow miraculously to the sky.”
RISKS
U.S. stocks were on a firm footing on Friday despite a big Chinese market selloff caused by the lack of hoped-for government stimulus, as well as stress in U.S. regional banks and commercial property.
China shares fell to new five-year lows on Friday and posted their worst weekly drop in five years, with the Shanghai Composite 1.5% lower on the day and down 6.2% for the week, its largest such loss since October 2018. The blue-chip CSI300 hit a five-year low.
Almost a year after the failure of California’s Silicon Valley Bank heightened concern about the balance sheet health of smaller U.S. lenders, New York Community Bancorp this week reported increased stress in its commercial real estate portfolio.
And in Tokyo on Friday, shares in Aozora Bank slumped for a second straight session to bring its weekly loss to 33%, after provisioning for U.S. office loan losses.
Rising Treasury yields and caution over rate cuts supported the dollar, however, with the index that tracks the U.S. currency’s progress against peers 0.5% higher .
The euro dropped 0.6% to $1.081, having been a touch higher against the dollar ahead of the jobs report.
Gold, which often moves inversely to the dollar, dropped 1.1% to $2,033.
Brent crude futures were 0.4% lower at $78.33 a barrel, after falling more than 2% the previous day.
(Reporting by Naomi Rovnick and Dhara Ranashinghe. Additional reporting by Stella Qiu. Editing by Christina Fincher and Andrew Heavens)
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