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US stocks reach record highs as weak employment data fuels rate-cut bets

U.S. stock prices briefly reached record levels on Friday, after data showed that U.S. employment growth had slowed in August. This led investors to increase their bets the Federal Reserve would cut interest rates this month by up to 50 basis points.

Treasury yields fell on speculation that the Fed would lower rates more aggressively, and the U.S. Dollar dropped, but gold reached a record high, bringing it closer to $3600 per ounce.

Equity markets are seen as a positive when interest rates drop, because it could result in lower borrowing costs for business. Gold, which doesn't pay interest, tends to shine as well when rates are low, and there is a lot of uncertainty.

Art Hogan, strategist at B Riley Wealth Management, Boston, stated that "this number today puts back on the table a rate cut of 50 basis points at the next policy meeting." "More importantly, I believe 75-basis point before the end the year is pretty much a lock." The U.S. government reported that nonfarm payrolls rose by just 22,000 jobs in August, after a 79,000-job increase upwardly revised in July. This was below the forecast of 75,000.

S&P 500 Index reached a record high of 6,532.65 in the early trading before reversing to be down by 0.4%. The Dow Jones Industrial Average hit a new record in the early minutes of trading before falling 0.6%. Meanwhile, the Nasdaq composite index lost 0.3%.

The yield on the two-year Treasury fell by 11.8 basis points at 3.47%. Meanwhile, the yield on the benchmark 10-year Treasury dropped 10 basis points, to 4.078%.

By 1440 GMT the MSCI World Equity Index had remained flat for the day, while Europe's STOXX 600 Index had fallen 0.2%. The FTSE 100 was down 0.1% and France's CAC40 lost 0.5%.

The dollar index fell 0.6% to 98.023 while the euro rose 0.7% to $1.1732.

The warning bell that was ringing in the labor markets a month ago has just gotten louder, said Olu sonola, director of U.S. Economic Research at Fitch Ratings.

"An employment report that is weaker than expected all but confirms a rate cut of 25 basis points later this month."

Fed Chair Jerome Powell fueled speculation about rate cuts with an unexpectedly dovish statement at the Fed symposium held in Jackson Hole last month. The market sentiment has improved in recent days, after the global stock markets fell this week, and European long-term bond yields reached their highest levels in years. Investors were concerned about various countries' finances and particularly Britain and France. France's 30 year yield was 4.3873% on Friday after reaching a high of 4.523% the previous day. The UK's 30 year yield was 5.553%. The benchmark German 10-year yield was 2.7051%. Data released on Friday revealed that German industrial orders fell unexpectedly in July. The U.S. has signed an agreement to lower auto tariffs for Japan after months of negotiation. The dollar fell 0.9% against the Japanese yen. The pair was trading at 147.05.

The oil prices are in their third consecutive day of declines. Brent crude futures dropped 2.3% to $65.44 per barrel while U.S. West Texas Intermediate crude fell 2.4% to $60.96. The European Union energy commissioner said that the bloc would be happy to hear about President Donald Trump's plans to stop buying Russian crude.

Gold spot was up by 1.1% to $3,584.39 an ounce after hitting a record of $3,597.66. This is the metal's strongest weekly gain since nearly four months.

(source: Reuters)