World shares rise, US yield curve inverts after strong jobs data

By Carolyn Cohn

LONDON (Reuters) - World shares bounced and government bond yields resumed their upward climb on Friday on signs of persistent prices pressures, while oil was poised for a 13% weekly fall following reserve releases.

U.S. data released early Friday showed employers added 431,000 jobs in March and the unemployment rate fell to 3.6%, continuing a strong run of hiring that has left key aspects of the U.S. labor market "little different" from where they were before the pandemic.

With U.S. economic growth so robust and inflation running at three times the Federal Reserve's 2% target, investors are widely expecting a drum roll of interest rate rises this year.

Treasury yields, which retreated earlier this week as portfolio adjustments boosted demand for bonds, spiked again on Friday, causing a closely watched part of the yield curve to invert for the third time this week.

An inversion of the yield curve, when shorter-dated yields rise above longer-dated ones, are seen as a harbinger of a recession in the next one or two years.

"Today's solid growth of payrolls checked the box for the Fed in its drive toward fighting inflation," said Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income.

"Consequently, the Fed looks clearly undeterred in reaching at least policy neutrality and probably will do at least one, and maybe two 50-basis-point rate hikes by the June ... meeting, which could even include an inter-meeting hike."

But bets that aggressive monetary tightening could be on the cards did not drag equity markets lower on Friday.

By late morning in New York, the Dow Jones Industrial Average was little changed, the S&P 500 rose 0.11%, and the Nasdaq Composite added 0.28%.

The pan-European STOXX 600 index rose 0.62% and MSCI's gauge of stocks across the globe gained 0.05%.

Inflation in Europe is also running at record levels, with Euro zone inflation hitting 7.5% in March, data showed on Friday, another all-time high with months left before it is set to peak, raising pressure on the European Central Bank to act to contain prices even as growth slows sharply.

In response, the German 10-year government bond yield, a benchmark for the euro zone, rose 2.8 bps to 0.58%, after jumping 39 bps in March, its biggest monthly rise since 2009. [GVD/EUR]

"Government bond yields have moved up markedly in recent weeks and can be expected to trend higher over time due to inflationary pressures that are here to stay and responses by the main central banks," said Christian Nolting, Global Chief Investment Officer at Deutsche Bank Private Bank in a note.

Two-year Treasury yields jumped to 2.4523% from 2.284%, surpassing benchmark 10-year U.S. Treasury yields, which also rose to 2.3932% from 2.325%. [US/]

In Tokyo, the Nikkei was down 0.56%, notching up a 1.7% weekly fall.

Supply disruption and surging raw material costs drove Japanese business confidence to a nine-month low last quarter.

Chinese blue chips rose 1.27%, helped by hopes for policy easing. [.HK]

Oil dipped in and out of negative territory ahead of a meeting of International Energy Agency member nations set to discuss a release of emergency oil reserves alongside a huge planned release by the United States.

Oil is on course for a 12%-13% weekly fall - the sharpest in almost two years, after an earlier surge driven by the Ukraine conflict had seen prices rise by more than 30%. [O/R]

U.S. crude rose 0.23% to $100.51 per barrel and Brent was at $105.64, up 0.89% on the day.

The dollar has benefited from safe-haven flows and expectations of rising U.S. rates. Against a basket of peers, the greenback was up 0.34% at 98.647, and it was up 0.87% against the yen at 122.81. [FRX/]

The euro was down slightly at $1.1040.

Safe-haven gold fell 0.59% after its biggest quarterly gain in two years. Spot gold was last quoted at $1,928.01 per ounce. [GOL/]

 

(Additional reporting by Andrew Galbraith in Shanghai, Tom Westbrook in Singapore and Saikat Chatterjee in London; Editing by Simon Cameron-Moore, Catherine Evans, Barbara Lewis and Nick Macfie)