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Blue-chip stocks rally as fears of a U.S. rate hike ease

Blue-chip stocks rally as fears of a U.S. rate hike ease
Blue-chip stocks rally as fears of a U.S. rate hike ease

Published: 9:50 p.m. BST, 2 September 2022 | Updated: 9:50 p.m. BST, 2 September 2022

Stock markets breathed a sigh of relief yesterday as US jobs figures eased fears of further aggressive interest rate hikes in the world’s largest economy.

The FTSE100 climbed 1.86%, or 132.69 points, to 7,281.19 while stock exchanges in Paris, Frankfurt and Milan also rallied strongly. This was after official figures showed the US economy added 315,000 jobs last month – more than expected but less than July’s 526,000.

It was the 20th straight month of job growth, but it was overtaken by the 700,000 people entering the labor market – working or looking for work – overall.

Relief: The FTSE100 climbed 1.86%, or 132.69 points, to 7,281.19 while the Paris, Frankfurt and Milan stock exchanges also rallied strongly

This means that unemployment fell from 3.5% to 3.7%. At the same time, wage growth has slowed. Any sign of slowing labor market strengthening could give the US Federal Reserve pause as it charts the course for interest rates.

The Fed has been raising rates aggressively in an attempt to fight inflation, but the latest numbers could make it less likely to opt for a third consecutive 0.75 percentage point hike this month.

Eric Merlis, co-head of global markets at Citizens, a bank, said: “This gradual cooling of the overheated labor market could be just what the US economy needs to help ease inflationary pressure.”

Markets have been gripped by concerns over rate hikes since Fed Chairman Jerome Powell’s remarks last week on keeping monetary policy tight “for a while”. Yesterday’s rebound followed a dismal session the day before, when the FTSE100 fell 1.9%. Giles Coghlan, chief currency analyst at HYCM, said: “The market is laser-focused on the aggressiveness of the Fed with its up cycle.”

The pound, which had a few dark days as it hit new two-and-a-half-year lows, hit $1.1588 against the dollar but then stabilized closer to $1.15.

The US currency has crushed its rivals in recent months thanks to the Fed’s aggressive rate policy.

Sterling’s weakness has been compounded by a drop in demand for UK government bonds over the past month, adding billions of pounds to the cost of borrowing.

Mike Riddell, senior fixed income portfolio manager at Allianz Global Investors, said it “could be a sign that overseas investors are losing faith in UK assets and the credibility of politics”.

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. Bluechip stocks rally fears #U.S rate hike ease

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