U.S. regional bank shares led Wall Street shares higher on Friday, but Treasury prices fell after strong jobs data revived concerns that the Federal Reserve would keep interest rates higher for longer.
Shares in PacWest and Western Alliance rose 83 percent and 38 percent respectively in New York after falling sharply in the previous session on renewed concerns about the sector’s health.
After a sell-off on Thursday, Wall Street’s benchmark S&P 500 rose 1.4 percent. The technology-heavy Nasdaq Composite was 1.8 percent higher, with Apple up 4.8 percent after first-quarter earnings and profit at the computer maker fell by less than analysts̵[ads1]7; forecasts. The KBW regional banking index rose 4.6 percent, reversing losses in the previous session.
As bank stocks steadied, monthly data showed the US economy added 253,000 jobs in April, far more than the 180,000 expected by economists polled by Reuters. Unemployment fell to 3.4 per cent, down from the 50-year low of 3.5 per cent. Economists had expected a small increase to 3.6 percent.
Investors had been watching the numbers for signs that the US economy was slowing, raising doubts about whether the Fed will start cutting interest rates as soon as expected.
The strong numbers will only add to concerns that “the US economy is probably still too hot in the eyes of the Federal Reserve”, said Richard Flynn, chief executive of Charles Schwab UK.
US government debt sold off sharply, and the yield on interest-sensitive two-year government bonds rose 0.21 percentage points to 3.93 percent.
In Europe, the regional Stoxx Europe 600 rose 1.1 percent and London’s FTSE 100 rose 1 percent. Sterling strengthened 0.6 percent against the dollar to $1.265, the highest point since May last year.
Germany’s Dax rose 1.4 percent, pushed up by an 8.9 percent gain for sportswear maker Adidas, even after figures showed German factory orders fell 10.7 percent in March from the previous month, a much steeper drop than economists had expected. It raised concerns about a sharp decline in Europe’s largest economy.
The European Central Bank on Thursday raised interest rates by a quarter of a percentage point, a drop from previous increases, but warned that the battle against inflation was not yet won. The ECB’s key deposit rate has risen from minus 0.5 per cent to 3.25 per cent in 11 months, its fastest ever tightening cycle.
Some analysts believe interest rates are close to peak levels. “For all the resilience of the banking sector in the euro area, the US experience calls for caution,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “We expect the ECB to stop interest rate increases in the summer.”
In commodity markets, the price of crude oil rose 3.6 percent to $75.08 a barrel, while WTI, its US counterpart, added 3.8 percent to $71.13 a barrel.