Global stock markets gain while Wall Street stays flat after strong US jobs report

Investors are mainly concerned about the Federal Reserve’s effort to rein in inflation, and the risk its plan could send America's economy into a recession

The hope on Wall Street had been that the recently mixed data on the economy could convince the Federal Reserve to take it easier on rate increases. AP

Global stock markets finished mostly higher on Friday, although Wall Street was flat after a jobs report that was surprisingly strong, while the euro was near parity with the dollar as traders bet on the prospect of a eurozone recession caused by soaring inflation.

In Europe, London's FTSE 100 closed up 0.1 per cent, Frankfurt's DAX rose 1.3 per cent and Paris's CAC 40 gained 0.4 per cent.

The euro on Friday slumped to $1.0072, a fresh 20-year low, before recovering back above $1.018.

"The depreciation in the euro to its lowest level in almost two decades against the dollar this week in large part reflects investors' view that the ECB will tighten less aggressively than the Fed," said Jessica Hinds, senior Europe economist at Capital Economics.

Earlier in Asia, Tokyo's Nikkei 225 rose 0.1 per cent and Hong Kong's Hang Seng index climbed 0.4 per cent. The Shanghai Composite, however, retreated 0.4 per cent.

On Wall Street, stocks capped a winning week with a spluttering finish on Friday, as stocks see-sawed following the stronger-than-expected jobs report.

The S&P 500 slipped 0.1 per cent after earlier flipping between a loss of 0.9 per cent and a gain of 0.4 per cent. Despite its weak finish, the benchmark index delivered only its third winning week in the last 14.

The Dow Jones Industrial Average slipped 0.1 per cent, while the Nasdaq composite rose 0.1 per cent after swinging between a loss of 1.2 per cent and a 0.6 per cent gain.

The technology and other high-growth companies that make up a big chunk of the Nasdaq index have been some of the most vulnerable to rising rates recently. Both indexes also notched a gain for the week, something that's been rare in recent months as the market's downturn gained momentum.

Wall Street’s key concern centres around the Federal Reserve’s effort to rein in inflation, and the risk its plan could send the economy into a recession.

The central bank has already hiked its key overnight interest rate three times this year, and the increases have become increasingly aggressive. Last month it raised rates by the sharpest degree since 1994, by three-quarters of a percentage point to a range of 1.50 per cent to 1.75 per cent. It was at virtually zero as recently as March.

By making it more expensive to borrow, the Fed has already slowed some parts of the economy. The housing market has cooled in particular as mortgage rates rise due to the Fed's actions. Other parts of the economy have also shown signs of flagging, and confidence has fallen sharply among consumers as they contend with the highest inflation in four decades.

"A strong read could bring forward two ideas: the idea that the US economy could soft-land despite the tighter Fed policy, or the idea that the Fed would allow itself to get more aggressive to fight inflation," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

"A meaningfully lower-than-expected NFP [non-farm payrolls] read, on the other hand, could confirm that the slowdown began and the jobs market may not be rate-hike-proof, or the Fed could soften its tone if it concludes that the economy is not strong enough to shoulder back-to-back big rate hikes, after all."

"In both cases, there is a large room for market interpretation; it’s difficult to predict what direction the market would take. We will, however, see whether [Fed chairman] Jerome Powell, who believes that the US jobs market remains strong enough to withstand the rising rates, is right, or is he again falling behind the curve."

The hope on Wall Street had been that the recently mixed data on the economy could convince the Federal Reserve to take it easier on rate increases. This week's reprieve from surging prices for oil and other commodities helped strengthen such hopes. But Friday’s jobs report may have undercut them.

The choppy trading on Friday comes before a key report on Wednesday on inflation at the consumer level. The consumer price index, which in May came in at the highest level since 1981, is projected to show an increase of 8.8 per cent over the 12 months up to June, according to FactSet.