Latest figures showing faster-than-expected wage rises yesterday raised the spectre of inflation in the US economy and fuelled expectations that the Federal Reserve would raise interest rates later this month.
Fresh indications that US wages were creeping up came from the Labour Department. Average hourly earnings rose 0.5 per cent from June to July, the department said - the third set of figures in the last week to point to rising wages. The economic cost index and unit labour costs also posted recent gains. The July unemployment rate remained steady at 4.3 per cent.
Share and bond prices fell as investors were convinced the Fed will raise rates on August 24th to cool off an economy that created 310,000 jobs in July. The dollar also dipped.
Long-term Treasury bonds took the biggest hit, with yields unwinding recent gains to reach 6.12 per cent at midday. Equity markets also fell, with the Dow Jones Industrial Average falling 144.61 by early afternoon to 10,679.21 before recovering marginally to close down 0.74 per cent at 10,714.03. Prices of European government bonds tumbled after the US employment figures were released.
The yield on 10-year German bonds - the benchmark for European markets - rose above 5 per cent for the first time since May last year.
The employment figures showed gains in the manufacturing sector for the first time in months.
In Dublin, the ISEQ rose by 0.12 per cent, strengthened by retail buying interest in AIB, and, as yet, unaffected by the US news. About 1.5 million shares traded yesterday but the bank's closing price, at €11.95, was still down 7.2 per cent on last week's closing price - although it regained its position as the largest company on the Irish Stock Exchange. Telecom Eireann investors were heartened by a three cent (2.4p) rise in the share price following Thursday's 32 cent (25p) drop, although the technology sector in general has been weak.
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