US stocks, bonds rally after soft jobs report; yen bounces back

By Amanda Cooper

LONDON, Aug 7 (Reuters) - Global stocks headed for their strongest weekly gain since May after a weaker-than-expected U.S. jobs report eased fears of an imminent Federal Reserve rate hike, while strong earnings and AI enthusiasm outweighed concerns about the Iran war.

U.S. stocks rose on Friday, led by technology and consumer discretionary shares, and Treasury yields fell, reflecting ebbing expectations that the Fed will raise rates at next month's meeting. Among major gainers around midday were SpaceX, up 12% on Friday and 19% for the week despite a large share lockup having been lifted on Thursday, and Tesla, up 3.8% for the day and 6.4% for the week.

The Nasdaq rose 1.3% near midday and the dollar fell, giving the Japanese yen a reprieve. The yen strengthened to 157.70 per dollar after earlier nearing 159, a level widely seen as a potential trigger for policy intervention.         

MSCI's All-World index has risen 2.4% this week, the most in three months, and was steady on Friday. Europe's STOXX 600 was up 0.6% on the day and 2% for the week, led by gains in healthcare and technology shares.

The U.S. payroll report showed employment fell by 23,000 jobs, confounding expectations in a Reuters poll for an increase of 80,000. Analysts said the data gave the Fed more room to keep rates unchanged next month while assessing upcoming economic indicators, including next week's U.S. inflation report.

"History doesn't repeat, but sometimes it rhymes," said Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management in New York. "For the third time in as many years, July jobs data saw a mid-summer loss of momentum. While incoming inflation data will be the ultimate arbiter, slowing jobs growth helps support a September hold."

TRADERS DOUBT FED RATE RISE

Money markets had been evenly divided on the prospects of a Fed rate increase next month before the payrolls report. After the data, the implied probability of a hike fell to about 40% from roughly 55% earlier.

"This morning's report cast some cold water on the idea that the jobs market is as rock solid as people have been talking about," said Chris Zaccarelli, chief investment officer at Northlight Asset Management, in Charlotte, North Carolina. "The weak jobs report means the Fed can no longer focus exclusively on inflation. It has to balance price stability against full employment, making it much more likely to stay on hold at its next meeting."

"All things being equal, that's good for the stock market. This is one of those 'bad news is good news' situations: bad news in the labor market could be good news for the stock market because the Fed is going to be on hold."

Conflict in the Middle East flared up again after Yemen's Iran-aligned Houthis attacked Saudi Arabia, a major oil exporter. Riyadh warned that coordinated attacks by the Houthis and Iran-backed Iraqi militias were imminent.

Brent crude futures reversed course on Friday to fall 0.7% to around $82 a barrel, as investors largely shrugged off Saudi Arabia's warnings.

Iran, meanwhile, is reviewing a preliminary bill that would bar U.S., Israeli and other "hostile" vessels from transiting the Strait of Hormuz, Iran's semi-official Fars news agency reported on Thursday, citing a lawmaker. The draft bill would impose fines of up to 20% of a ship's cargo value for violations.

Treasury yields fell after the soft jobs report, though they bounced off their early morning lows at midday Eastern time. The 2-year note yield fell 5 basis points to 4.20%, while the 10-year yield dropped 2 basis points to 4.64%.

Likewise, the U.S. currency slipped alongside rate expectations, pushing the dollar index down 0.3% to 99.61 and lifting the yen. 

Gold moved inversely to the dollar, rising to its highest in around six weeks this week while the U.S. currency hovered near six-week lows. Bullion has gained nearly 7% this week, its strongest weekly performance since mid-January, when it hit a record $5,594. It was last up 2.6% at $4,414 an ounce.

(Additional reporting by Stella Qiu in Sydney. Editing by Alex Richardson, Colin Barr, Mark Potter and Sanjeev Miglani)