ASX set to rise despite inflation fears weighing on Wall Street

Worries about inflation weighed on Wall Street on Friday, leaving major indexes mixed after a report showed wages for US workers are accelerating, which is good news for them but could feed into even higher inflation for the nation.

The S&P 500 ended 0.1 per cent lower after having been down as much as 1.2 per cent earlier in the day. The Nasdaq composite also trimmed its deficit, falling 0.2 per cent, while the Dow Jones Industrial Average eked out a 0.1 per cent gain. The indexes all notched gains for the week.

Stocks had been on the upswing for the last month on hopes the worst of the nation’s high inflation may have passed already. That fed expectations for the Federal Reserve to dial down the intensity of its big interest-rate hikes. Such hikes aim to undercut inflation by slowing the economy and dragging down prices for stocks and other investments.

But Friday’s labour market report showed that wages for workers rose 5.1 per cent last month from a year earlier. That’s an acceleration from October’s 4.9 per cent gain and easily topped economists’ expectations for a slowdown.

Such jumps in pay are helpful to workers struggling to keep up with soaring prices for everyday necessities. The Federal Reserve’s worry is that too-strong gains could cause inflation to become further entrenched in the economy. That’s because wages make up a big part of costs for companies in services industries, and they could end up raising their own prices further to cover higher wages for their employees.

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“Inflation is certainly moving in the right direction,” said Adam Abbas, co-head of fixed income at Harris Associates, “but the market is still going to have to go through some calibration of the risk that we level off at 3 per cent to 4 per cent core inflation versus a natural, steady move down to” the 2 per cent goal set by the Fed.

“After such a strong move over the last three and a half weeks,” Abbas said about expectations for an easing up by the Fed, “maybe the market has gotten a little ahead of itself.”

Across the economy, employers added 263,000 jobs last month. That beat economists’ forecasts for 200,000, while the unemployment rate held steady at 3.7 per cent. Many Americans also continue to stay entirely out of the job market, with a larger percentage of people either not working or looking for work than before the pandemic, which could increase the pressure on employers to raise wages.