A sharp rise in US employment, which suggests that a full half-point rise in US interest rates is now a near-certainty, failed to have much effect on international stock markets, with the expected half-point increase apparently priced in.
After trading tentatively ahead of the US jobs report, European stock markets pushed ahead modestly in the afternoon session, with the FTSE-100 index up just over 0.6 per cent and the CAC-40 index in Paris up 0.8 per cent. The Frankfurt market, however, put on a strong performance and closed almost 2 per cent higher with a sense of relief among investors that US interest rate uncertainty is at an end. The Irish market matched other markets and closed just over 0.5 per cent higher.
In New York, the Dow closed up 1.59 per cent while the technology-based Nasdaq composite index was 2.6 per cent higher.
Dealers said the recent stock sell-off meant that a half percentage point increase in borrowing costs by the Federal Reserve to fend off inflation had already been priced into the market. The Fed meets on May 16th to consider rates.
"The data are going to crystalise the view in the market that the Fed is going to aim for 50 basis point hike on May 16th," said Mr David Brown, European economist at Bear Stearns. "With headline unemployment rate at 3.9 per cent, it will underscore Fed fears about supply side bottlenecks in the labour market," Mr Brown said.
"There was some discussion about whether the Federal Reserve would raise rates by 25 or 50 basis points, but the unemployment number makes it look like it will be 50," said one fund manager. "There is some relief that it is going to be 50. I think the removal of the uncertainty has people coming back into stocks, as crazy as it seems," he added.
US unemployment fell to 3.9 per cent in April - its lowest level for 30 years - as 340,000 new jobs were created by the US economy. This unemployment rate compared with 4.1 per cent in March and was lower than the 4 per cent rate expected.
The drop in the unemployment rate below the psychologically important 4 percent mark and the continued wage pressure shown in the jobs report puts pressure on the Federal Reserve to raise interest rates aggressively.
