Markets bounce 1% as US unemployment rise eases QE fears

USA-New-York-America-NYC-Taxi-700x450.jpg

US stockmarkets have opened higher after the the country posted a small rise in unemployment, easing concerns that the Federal Reserve could soon start to taper quantitative easing.

Non-farm payrolls data published by the US Bureau of Labor Statistics show the world’s biggest economy created 175,000 jobs in May. This was better than the 165,000 expected by analysts.

The sell-off which has blighted world stockmarkets over the past few weeks was prompted after Fed chairman Ben Bernanke said the central bank could start to slow its $85bn-a-month bond-buying programme “in the next few meetings” if the country’s labour market continues to strengthen.

However, the country’s unemployment rate showed a slight rise in May, suggesting that the central bank could hold off on any immediate changes to its monetary policy. As of 1530 BST, the S&P 500 was up 0.94 per cent to 1,637.77 while the Dow Jones gained 1.07 per cent to 15,202.27.

The FTSE 100, meanwhile, was up 1.25 per cent to 6,415.51. In Europe, the Euro Stoxx 50 was up 1.49 per cent, the German Dax 1.48 per cent and the French Cac 40 1.31 per cent an hour before closing.

Commenting on the jobs data, Capital Economics senior US economist Paul Dales says: “We think this leaves the Fed on track to taper QE3 later this year. May’s gain was better than April’s 149,000 rise (revised down from 165,000) and takes jobs growth a bit closer to the monthly average of 200,000 seen in the previous six months.

“The weak tone of the recent survey evidence suggests payrolls may weaken a bit in the coming months. But we don’t think it will be long before they return to gains of around 180,000 a month. If that is the case by the time the Fed meets in September, then it will probably trim the pace of its monthly asset purchases.”

Despite the better-than-expected job creation numbers, the data shows the US unemployment rate was rose slightly from 7.5 per cent at 7.6 per cent, while the number of unemployed people went from 11.66m to 11.76m.

Close Brothers Asset Management chief investment officer Nancy Curtin says: “More jobs were added to the economy in May than in the previous month. However, with unemployment also edging upwards, this will temper the Fed’s eagerness to taper QE.

“The mixed news may turn out to be a blessing for investors as it highlights that the economy is not yet robust enough to stand on its own two feet, therefore underpinning the performance of US equities in the longer term.”

Schroders chief economist Keith Wade adds: “This strengthens our conviction that we will have to wait until the second quarter of next year before the Fed starts to take its foot off the gas.

“Our call is for a later withdrawal of stimulus, however regular payroll gains of 200,000 per month will be needed to persuade the Fed that it is time to start tapering bond purchases – we are some way from that.”