The lowdown:

Market strategist at Saxo Markets, Jessica Amir, said employment data was the main driver of the upwards movement in Australian markets on Thursday.

“The markets had baked in that employment would pick up, but the opposite has materialised,” she said. “That has generated hope that the RBA could take their foot off the gas and pause interest rate hikes before reversing them.”

The latest figures from the Australian Bureau of Statistics showed that employment unexpectedly fell in December and the jobless rate held unchanged at 3.5 per cent, sending the Aussie dollar and bond yields lower as traders pared bets on a February interest rate increase. The yield on one-year government bonds fell just below the 3.1 per cent cash rate.

Amir said weakness in the energy sector could be attributed to a fall in oil prices, while materials rallied on optimism around China’s reopening.

“There’s likely some profit-taking at play for energy companies because the oil price came off fresh highs, losing 1.5 per cent,” she said. “Meanwhile, the reopening of China’s economy is quite supportive for iron ore, copper and aluminium companies. BHP, Rio Tinto and Fortescue are hitting new highs and records.”

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Overnight, Wall Street had its biggest pullback of the year after a key Federal Reserve policymaker said the central bank needed to keep raising rates to tame inflation.

Technology stocks led the way lower in the US while weak readings on retail sales and industrial production also helped keep investors in a selling mood. The S&P 500 fell 1.6 per cent after rising as much as 0.6 per cent earlier in the day. The Nasdaq fell 1.2 per cent and the Dow lost 1.8 per cent.

Technology stocks were among the heaviest drags on the US market. Microsoft fell 1.9 per cent after it became the latest technology company to announce lay-offs. The software giant is cutting 10,000 jobs, or almost 5 per cent of its workforce.

US Treasury yields were lower after the government reported that Americans cut back on their spending more than anticipated last month, the second straight decline. The government also reported more encouraging inflation data. Wholesale prices rose 6.2 per cent in December from a year earlier, a sixth straight slowdown for the measure of prices before they are passed along to consumers.

The Fed will announce its next decision on interest rates on February 1. Investors are largely forecasting a raise of just 0.25 percentage points next month, down from December’s half-point rise and from four prior increases of 0.75 percentage points.

While there’s growing evidence that high inflation is finally easing, further rate rises are still needed, according to Loretta Mester, president of the Federal Reserve Bank of Cleveland.

“I still see the larger risk coming from tightening too little,” Mester told the Associated Press.

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Mester stressed her belief that the Fed’s key rate should rise a “little bit” above the 5 per cent to 5.25 per cent range that policymakers have collectively projected for the end of this year.

The US central bank has raised its key overnight rate to a range of 4.25 per cent to 4.50 per cent from roughly zero a year ago.

The broader economic picture is still not clear enough to see whether its fight against inflation is working well enough to avoid a recession. Several major banks have forecast at least a mild recession at some point in 2023.

Tweet of the day:

Quote of the day:

“China is expected to achieve its fifth straight year of over 1 billion tonnes of steel production,” said BHP chief executive Mike Henry, after the company posted record half-year production of iron ore. The company believes China’s reopening will prop up demand for some of Australia’s largest commodity exports.

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