European equities wavered as investors struggled to understand the implications of a weaker than expected US jobs report that sent conflicting signals about inflation and possible next moves from global central banks.
The Stoxx 600 index was flat in early dealings, after hitting an all-time high on Friday. The UK’s FTSE 100 also traded flat.
Data on Friday showed US employers added 226,000 jobs in April, down from 770,000 in March. This prompted US president Joe Biden to urge Congress to rapidly pass proposals for more than $4tn in infrastructure and social spending.
Some analysts said the hiring slowdown meant the Federal Reserve and other central banks would not be in a hurry to taper the trillions of dollars in asset purchases they have been making since last March to support financial markets through the pandemic.
“There is now a stronger view that central banks can carry on pumping asset markets and commodity prices,” Rabobank strategist Michael Every said.
Others viewed the weak jobs report as a sign that US employers were struggling to hire the workers they needed to cater for rising consumer demand as the US recovers from the pandemic. They worry this could heighten inflation and make it harder for the Fed to justify its $120bn a month of asset purchases.
“This report can still be seen as inflationary,” commented Deutsche Bank strategist Jim Reid.
Input prices for companies are also rising, with an index of commodities tracked by Bloomberg gaining 21 per cent this year.
“Any twinned rise in wages and prices will cause the market to get bolder in fighting the Fed,” Will Denyer, of research house Gavekal, said.
While stock markets were steady on Monday, government bonds, whose fixed interest returns are eroded by inflation, sold off slightly. The yield on the 10-year US Treasury, which moves inversely to its price, added 0.02 percentage points to 1.597 per cent. Germany’s equivalent Bund yield rose by the same amount to minus 0.198 per cent.
“The market is clearly confused, with the narrative moving in different directions day by day,” said Yuko Takano, a portfolio manager at Newton Investment Management. “It is a very tricky environment to navigate.”
The dollar index, which measures the greenback against a group of trading partners’ currencies, was steady on Monday but 0.7 per cent below its level just before Friday’s jobs report was released. Sterling rose 0.7 per cent to $1.407, after Conservative party victories in local elections in England and the expected announcement of more coronavirus restrictions being lifted from May 17.
Elsewhere, Brent crude futures gained 0.7 per cent to $68.28 a barrel as supply fears were caused by the shutdown of the US Colonial pipeline following a cyber attack.
Asian stock markets ended the day mixed, with China’s CSI 300 trading flat while other bourses followed Friday’s performance in the US. Japan’s Topix rose 1 per cent and South Korea’s Kospi 200 gained 1.7 per cent.