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Markets mixed as jobs data brightens outlook, rekindles inflation fears

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Global stocks edged higher and U.S. Treasuries sold off on Friday as strong U.S. jobs data brightened the economic outlook but forced traders to pare back expectations of Federal Reserve monetary policy easing after a long spate of rate hikes.

MSCI’s broad index of global equities eked out a 0.1% gain ahead of the New York market open, while Wall Street stock futures were firm.

Contracts on the benchmark S&P 500 share index were 0.8% higher just ahead of the opening bell, also boosted by better than expected earnings overnight from Apple Inc (AAPL.O). Contracts on the tech-heavy Nasdaq 100 added 0.7%.

The yield on the two-year Treasury note , which tracks interest rate expectations, added 16 basis points (bps) to 3.883% as the price of the debt instrument fell.

The benchmark 10-year Treasury yield , which sets the tone for borrowing costs and asset pricing worldwide, was 11 bps higher at 3.4362%. Bond yields move inversely to prices.

The dollar, as measured against a basket of currencies, rose 0.3%, putting it on course for a slim weekly gain.

The official non-farms payroll report showed U.S. employers added 253,000 new jobs in April, up from 165,000 in March. Economists polled by Reuters expected 180,000 new jobs, in what would have been the smallest gain since December 2020.

Ahead of the jobs data markets were pricing for the Fed, which raised its main funds rate by 25 basis points (bps) to a range of 5%-5.25% on Wednesday, to pause at its next meeting in June and begin rate cuts from July .

Immediately after the payrolls report, forecasts of a July cut had reduced significantly.

The Fed’s recent hiking cycle, started early last year, has been its most aggressive since the 1980s in the face of high inflation, but was called into question with the collapse of Californian lender Silicon Valley Bank in March.

“We’re only just entering the phase where monetary policy is having its maximum impact,” said UBS head of European equity strategy Gerry Fowler said.

“We expect there will be job losses in the U.S. starting in the third quarter (of this year),” he said, with “concerns about credit quality and how that ripples through the banking system.”

Los Angeles-based PacWest Bancorp (PACW.O) said it was exploring a sale, deepening falls in U.S. regional bank stocks. Shares in smaller U.S. banks (.BKX) have dropped 11.5% this week, after the weekend collapse of First Republic Bank.

In Europe, the yield on Germany’s ten-year Bund , a benchmark for euro zone debt costs, rose 9bps to 2.29%.

The euro dropped 0.4% to $1.0975, reversing a small gain against the dollar from earlier in the day. The Stoxx 600 index of European shares rose 0.6%, tracking Wall Street equity futures.

Spot gold lost 1.9% to $2,012 an ounce as bets of dollar weakness reduced.

Brent was at $74.49, up 2.7% on the day.

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