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LONDON (Reuters) - Stocks turned lower on Friday after figures showed the U.S. economy was creating jobs at a strong pace and give the Federal Reserve cover to continue with hefty interest rate hikes to quell inflation.
After drifting sideways earlier in the session, stock markets turned lower, with bets on the Federal Reserve raising rates by 75 basis points at its next meeting increasing, sending the dollar higher.
U.S. stock index futures, little changed before the data, fell by more than 1% after the report showed nonfarm payrolls increased by 263,000 in September - slightly above expectations - with the jobless rate at 3.5%, below forecasts.
“With this jobs report it seems clear we are on course for another significant hike from the Fed, with the market pricing in a 75 bps rise in interest rates at its next meeting,” said Paul Craig, portfolio manager at Quilter Investors.
Credit Suisse shares were up 4.5% after it announced it will buy back up to 3 billion Swiss francs of debt following steep falls in its stock price on unsubstantiated rumours that its future was in doubt.
Stocks had recovered after being knocked earlier in the day on news of chipmakers Samsung and AMD flagging a slump in demand, blaming inflation, higher interest rates and the impact of Russia’s invasion of Ukraine.
In Europe, the STOXX index of 600 leading companies, flat ahead of the U.S. data, fell 0.7%.
The immediate focus is on earnings for the United States and whether consumers are holding up in the teeth of rate hikes, Patrick Spencer, vice chairman of equities at Baird Investment Bank, said.
“Bank earnings start next week from Morgan Stanley, JP Morgan, Wells Fargo and Citi. That’s going to be a pretty good indication because they all have big credit card businesses and they’ll give us a very good indication on the consumer,” Spencer said.
The MSCI All Country stock index fell 0.5%, leaving it down about 24% for the year.
Apart from the U.S. earnings season kicking off, analysts said other key data also loom.
“Next week, it all comes down to the U.S. inflation release,” UniCredit analysts said in a note to clients.
Fed officials showed no intention of backing down from the most aggressive rate hike campaign in decades, with Fed Governor Lisa Cook, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari this week all emphasising that the inflation fight was ongoing and they were not prepared to change course.
Markets currently price in a 92% chance of a 75-basis-point increase for next month’s Federal Open Market Committee meeting.
The yield on the benchmark 10-year Treasury note was at 3.8916%, higher than before the payrolls data.
The dollar index, which tracks the greenback versus a basket of six major peers, rose 0.4% to 112.730 following a 1.84% two-day rally from a two-week low.
Sterling reversed course to fall 0.3% to $1.113. The euro also fell, down 0.35% at $0.9758.
Crude oil on Friday steadied after a rapid climb triggered by OPEC+ output cuts announced this week. [O/R]
Brent crude was up 0.5% to $94.94 a barrel. WTI crude futures were up 0.3% at $88.74 a barrel.
Reporting by Huw Jones, Lucy Raitano, Kevin Buckland; Editing by Christopher Cushing, Elaine Hardcastle, Andrew Heavens and Andrea Ricci
