Dow Jones breaks through 17,000 barrier on back of surging US job figures

 

Economics Editor

The Dow Jones Industrial Average burst through 17,000 for the first time yesterday following a report showing the American economy added 288,000 more jobs in June.

Another equity benchmark, the S&P 500, was also up, rising just shy of 2,000 in the wake of the report, which showed the US unemployment rate dipping to 6.1 per cent of the workforce.

The surging index of top shares in the world's largest economy was said to reflect the confidence of traders that the US is recovering fast after bad weather prompted a GDP contraction in the first quarter of the year.

"It's an extremely bullish report. It's a report that really checks off all the positive boxes. I don't think you could have asked for a stronger read" said Jacob Oubina of RBC Capital Markets in New York.

"The overall improvement in the labour market suggests the weak first quarter GDP figures that were released in June were a blip in the underlying trend," said Danae Kyriakopoulou, of the Centre for Economics and Business Research.

MSCI's all-country index, which covers 85 per cent of potential global equity investments, also hit a record high after rising 0.22 per cent.

The FTSE 100 rose for a third day in succesion, closing 0.7 per cent higher at 6,865 while European shares were helped by comments from Mario Draghi, who said the European Central Bank was prepared to engage in asset purchases to lift inflation in the eurozone. The ECB's council voted to keep its interest rates in negative territory.

The US economy has added an average of 231,000 jobs per month this year, the highest six-month average since 2006. In June there was a drop in the number of Americans who have been out of work for at least 27 weeks, which at 3.1 million was the smallest figure since February 2009.

JP Morgan brought forward its forecast for the first rate increase from the Fed- eral Reserve from the final quarter of 2015 to the third quarter and the dollar gained rose against other currencies, reflecting shifting expectations over the timing of monetary tightening.

"Markets are torn between the good economic news and the risk this entails for a super accommodative Federal Reserve" said Mohamed El-Erian, chief economic adviser at Allianz SE. "If this robust June jobs report is repeated in the months ahead the Federal Reserve would do more than completely exit its asset purchase program. It would also have to accelerate its interest rate hikes".

Concerns have been growing that low interest rates have encouraged investors to misprice credit risk. The Bank of International Settlements this week suggested central banks should consider withdrawing exceptional levels of monetary stimulus for this very reason.

However, the chair of the Federal Reserve, Janet Yellen, refused that advice in a speech this week at the International Monetary Fund in Washington. "I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment in order to address financial stability concerns" she said.

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