[1/2] A man walks past an electric monitor displaying Japan's Nikkei share average and recent movements, outside a bank in Tokyo, Japan, June 5, 2023. REUTERS/Issei Kato
LONDON, June 5 (Reuters) - Shares held firm and the dollar edged up on Monday as investors priced in reduced odds of a June rate hike by the Federal Reserve after a mostly encouraging U.S. jobs report, while oil prices jumped after Saudi Arabia pledged big output cuts.
The benchmark European STOXX index (.STOXX) nudged up 0.1% in early trading, led by gains in the oil & gas sector index (.SXEP) and echoing a 0.2% gain in MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS).
Japan's Nikkei (.N225) had earlier surged 2.1% to stand above 32,000 for the first time since July 1990.
While markets failed to resume last week's rally, the data released on Friday showing wage pressures easing and the unemployment rate climbing off a 53-year low gave hope that the Fed is making further progress against inflation.
That in turn could mean a pause in rate hikes is decided at its June 13-14 meeting, even as the data released at the end of last week also showed payrolls far outstripping forecasts, a potentially inflationary signal.
Those mixed signs and the lack of fresh indications on Fed policy set U.S. share markets up for a directionless session early on Monday, with with S&P 500 futures up 0.06% while Nasdaq futures dipped slightly.
Oil prices, which have recently come under pressure amid heightened concerns about China's slowing economy, rose after Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years.
Brent oil rose 1.7% to $77.44 a barrel by 1100 GMT, giving up some of its earlier gains to as high as $78.73, while U.S. crude climbed 1.85% to $73.07 a barrel, after hitting a session high of $75.06.
"With Saudi Arabia protecting oil prices from sliding too low ... we think oil markets are now more prone to a shortfall later this year," said Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia.
"We think Brent futures will rise to $85 by Q4 2023 even with a tepid demand recovery in China factored in."
Data on Friday showed the U.S. economy added 339,000 jobs last month, higher than most estimates, but moderating wage growth and the rising jobless rate led markets to price a 75% chance of no change in Fed rates in June, according to the CME FedWatch tool.
That would be broadly positive for stocks, albeit there is about a 70% probability that fed funds rate would reach 5.25-5.5% or beyond at the policy meeting in July, if U.S. inflation remains elevated. Conversely, markets now see little chance of a rate cut by the end of this year.
Treasury yields continued to climb on Monday. Yields on U.S. two-year Treasuries rose 5 basis points to 4.5494%, on top of a surge of 16.2 bp on Friday, and 10-year yields also climbed 5 bps to 3.7447%, after a rise of 8 bps on Friday.
Fitch Ratings said the United States' "AAA" credit rating would remain on negative watch, despite the debt agreement.
The U.S. dollar was at 104.25 against its major peers on Monday, after gaining 0.5% on Friday on the jobs report. The greenback also rose 0.1% on the Japanese yen to 140.26 while the euro eased 0.1% to $0.1069.
Central banks from Australia and Canada will meet this week. Markets see a sizeable chance - about 40% - that the RBA could surprise with a quarter-point hike on Tuesday, after a minimum wage hike that economists feared could further stoke inflationary pressures.
The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5% for the rest of the year although the risk of one more rate rise remains high.
Additional reporting by Stella Qiu, Editing by Sam Holmes, Kim Coghill, Ed Osmond and Chizu Nomiyama
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