Global stocks rose and the dollar rallied broadly on Friday after a robust U.S. labor market report beat expectations and provided another sign the world's biggest economy is recovering.
Strong acceptance from private creditors for a Greek bond swap averted a messy default and added to a slightly bullish mood, but the losses forced on the debt holders also triggered the payment of insurance contracts.
A ruling by the International Swaps and Derivatives Association that a credit event had occurred cut into gains on Wall Street and pared losses in the bond market. The euro fell further, but the announcement was widely expected and the single currency snapped back to recoup rebounded a tad.
U.S. employment grew solidly for a third straight month in February as employers added 227,000 jobs to their payrolls, the Labor Department, even though the unemployment rate held at a three-year low of 8.3 percent.
The data offered encouragement for those who see the U.S. economy moving into a more sustainable stage of recovery that could lead the Federal Reserve to drop its easy money stance earlier that the market now perceives.
The dollar hits its highest level against the yen in nearly 11 months and rallied broadly against other currencies, while safe-haven government debt prices fell. Gold reserved early sharp losses to rise nearly 1 percent in heavy trading.
The Dow Jones industrial average closed up 14.08 points, or 0.11 percent, at 12,922.02. The Standard & Poor's 500 Index added 4.96 points, or 0.36 percent, at 1,370.87. The Nasdaq Composite Index gained 17.92 points, or 0.60 percent, at 2,988.34.
For the week, the Dow fell 0.4 percent, the S&P 500 rose 0.1 percent and Nasdaq gained 0.4 percent.
Three years ago on Friday marked the depth of market lows brought on by the financial crisis. The S&P 500 now is trading at levels last seen in June 2008, before Lehman's collapse later that fall spent markets into a downward spiral. It is still 200 points below its all-time high set in October 2007.
European shares rose, supported by the U.S. labor market report. Data from the United States and emerging markets has become a key driver for European companies, which face lackluster domestic growth, as underscored by Friday's weaker-than-expected industrial output from France, Italy and Britain.
The FTSE Eurofirst 300 index of top regional shares closed up 0.4 percent at 1,079.37 points.
The U.S. data lifted the dollar broadly to multi-month highs against other currencies and initially pushed commodity prices lower. Crude oil futures later rebounded, as the data countered dollar pressure and fading euphoria over Greece's debt swap. (Reuters)
Investors are unlikely to gain strong conviction on asset allocation any time soon as risks from the escalating euro zone debt crisis and risks surrounding China offset more positive signals from the corporate earnings season.
World stocks, measured by MSCI , briefly hit a five-week high on Friday, July 8, extending their recovery from a June sell-off prompted by concerns about the euro zone debt crisis and weakening economic momentum.
Investors remain nervous about the impact of a potential default in Greek sovereign debt and contagion to other weak peripheral countries in a saga that is unlikely to end any time soon.
A smaller-than-expected rise in U.S. non-farm payrolls in June was also a drag, but other recent data showed the economy is coming out of a soft patch in a global economy still expected to grow at a healthy 4 percent this year.
Investors are also uncertain whether China's latest interest rate hike leaves Beijing near the end of a nine-month long policy tightening cycle as its economy eases gently but inflation stays elevated at 34-month highs.
This tug-of-war prevents any single asset class from strongly outperforming others and investors are forced to keep neutral allocation for now.
"Investor concerns are primarily about the soft patch and the European crisis. The insolvency situation is required for the euro zone, which is very difficult to achieve when you have so many policymakers involved," said Carl Astorri, global head of economics and asset strategy at British private bank Coutts.
"We seem to be stuck in a world where people are not having strong conviction. People don't seem to have a staying power to hold positions. But you're getting nothing on cash. Ultimately we think people will get rewarded for taking risks."
Coutts is overweight on equities, especially in emerging markets, and has a strong underweight position on government bonds.
International bankers and European Union officials are in a deadlock over how private creditors might voluntarily maintain their exposure to Greek sovereign debt. Euro zone finance ministers will meet in Brussels next week. (theedgemalaysia.com)
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