Markets steady ahead of US jobs report

Equities updates

European stocks and US Treasury bonds drifted on Friday as investors held back from placing bets ahead of US jobs data that may influence the path of monetary policy in the world’s largest economy.

The Stoxx Europe 600 index opened 0.2 per cent lower, remaining close to its all-time high following seven months of gains driven by a sharp rebound in corporate earnings from last year’s pandemic-induced downturn. London’s FTSE 100 traded flat.

Futures markets signalled Wall Street’s S&P 500, which has also rallied to a record as companies’ earnings improved and investors banked on the Federal Reserve maintaining its $120bn of month of crisis-era bond purchases, would gain 0.1 per cent in early New York dealings.

Economists polled by Reuters expect the non-farm payrolls report due later on Friday to show US employers created 750,000 new jobs in August, down from 943,000 in July, as rising infections from the Delta variant of coronavirus and supply chain shortages dented business confidence.

The Conference Board’s consumer sentiment index fell to its lowest since February last month, while purchasing managers’ indices hinted manufacturing activity had softened slightly.

Fed chair Jay Powell has signalled the central bank will begin scaling back its asset purchases this year, but also hinted the jobs market needs to progress further.

Friday’s report “will probably go some way to determining”, whether the Fed announces a taper of its bond purchases at its meeting this month “or perhaps delays until the following meeting in November”, Daiwa economist Chris Scicluna wrote in a research note.

The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, was steady at 1.29 per cent. This yield has fallen from close to 1.8 per cent in March, when markets were betting on coronavirus vaccines driving a linear economic recovery from the pandemic and central banks tightening monetary policy swiftly.

Equity and bond prices now pointed to a “Goldilocks scenario of [market interest] rates staying lower, equities heading higher and any tapering by the Fed starting slowly,” said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich & Co.

The dollar index, which measures the US currency against six others, traded flat on Friday at around its weakest in a month. The euro was steady against the dollar, purchasing $1.1878. Sterling was also unchanged at $1.1383. Brent crude, the oil benchmark, fell 0.1 per cent to $72.93.

In Asia, Japan’s Nikkei 225 closed more than 2 per cent higher, after the nation’s prime minister Yoshihide Suga said he would step down and traders bet on his successor unleashing more economic stimulus.

Hong Kong’s Hang Seng index dropped 0.8 per cent, dragged down by stocks in China’s technology sector, which has been the subject of an intense regulatory crackdown. Mainland China’s CSI 300 lost 0.6 per cent, with consumer, industrial and materials companies falling the most after the nation’s manufacturing industry slowed and the government implemented strong measures to control new outbreaks of coronavirus.

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