Blue chip shares rally as US rate-hike fears ease

Stock markets breathed a sigh of relief yesterday as US jobs figures eased fears of further aggressive interest rate hikes in the world’s biggest economy. 

The FTSE100 climbed 1.86 per cent, or 132.69 points, to 7281.19 while bourses in Paris, Frankfurt and Milan also rallied sharply. That was after official figures showed the US economy added 315,000 jobs last month – higher than expected but lower than July’s 526,000. 

It was the 20th straight month of jobs growth but was outpaced by the 700,000 people entering the labour market – either working or looking for a job – overall. 

That meant unemployment rose from 3.5 per cent to 3.7 per cent. At the same time, wage growth eased. Any sign of a slowdown in the strengthening of the labour market could give the US Federal Reserve pause as it plots the path for interest rates. 

The Fed has been hiking rates aggressively to try to combat inflation but the latest figures might make it less likely to go for a third consecutive increase of 0.75 percentage points this month. 

Eric Merlis, co-head of global markets at Citizens, a bank, said: ‘This gradual cooling off of the overheated labour market may be just what the US economy needs to help ease inflation pressure.’ 

Markets have been gripped by worries about rate hikes since remarks by Fed chairman Jerome Powell last week about keeping monetary policy tight ‘for some time’. Yesterday’s rebound followed a bleak session the day before, when the FTSE100 fell by 1.9 per cent. Giles Coghlan, chief currency analyst at HYCM, said: ‘The market is laser-focused on how aggressive the Fed is going to be with its hiking cycle.’ 

The pound, which has had a bleak few days as it hit new two-and-a-half year lows, rose to $1.1588 against the dollar though later settled back at closer to $1.15. 

The US currency has steamrollered rivals over recent months thanks to the Fed’s aggressive rates policy. 

Sterling’s weakness has been compounded by a fall in demand for UK government bonds over the past month – adding billions of pounds to the cost of borrowing. 

Mike Riddell, a senior fixed income portfolio manager at Allianz Global Investors, said it ‘could be a sign that overseas investors are losing confidence in UK assets and policy credibility’.