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European shares turned higher on Friday, putting the brakes on five straight days of declines, ahead of closely watched US jobs data which may offer clues about how far the Federal Reserve will increase interest rates.
The regional Stoxx Europe 600 gauge added 0.5 per cent in early dealings, after closing 1.8 per cent lower on Thursday. London’s FTSE 100 edged up 0.2 per cent. In Asian markets, Hong Kong’s Hang Seng slipped 0.8 per cent, trimming earlier losses, while Japan’s Topix fell 0.3 per cent.
Those moves came at the end of a gloomy week for global equities, which were on course for their worst week since mid-June. Hawkish rhetoric from Federal Reserve chair Jay Powell at the Jackson Hole Economic Symposium last Friday set the tone for higher borrowing costs to come, stoking worries about rate-setters around the world inducing a deep recession as they tighten monetary policy to curb inflation.
Market participants were on Friday bracing themselves for widely anticipated monthly non-farm payrolls numbers. Economists polled by Reuters were expecting US employers to have added 300,000 new roles in August, fewer than the 528,000 added in July. A larger than projected number, signalling a hot labour market, could lead investors to crank up their estimates of how high the Fed will raise rates.
“Today, we think that a decent US jobs report (we expect 250k) might be enough to cement [0.75 percentage point] September hike expectations and keep the bullish sentiment on the dollar alive,” said analysts at ING.
The Fed lifted rates by 0.75 percentage points in July for the second time in a row, taking its target range to 2.25 to 2.50 per cent. Its next monetary policy meeting will take place in late September. US employment data on Thursday also indicated a heated jobs market, putting further pressure on the Fed to raise rates.
Concerns about the health of the global economy had been exacerbated on Thursday by the introduction of a new lockdown in the Chinese megacity of Chengdu, as officials stuck to the country’s zero-Covid policy. Weak Chinese manufacturing data, released the same day, rounded out the darkening mood — signalling waning demand and, in turn, a wider slowdown.
Wall Street stock futures were subdued, with contracts tracking the broad S&P 500 edging 0.2 per cent lower. That muted decline followed a mixed session, in which the S&P and tech-heavy Nasdaq Composite retraced steep falls to close up 0.3 per cent and down 0.3 per cent respectively.
In government debt markets, the yield on the 10-year US Treasury note slipped 0.02 percentage points lower to 3.24 per cent during European morning trading. The policy-sensitive two-year yield lost 0.03 percentage points to 3.49 per cent, having this week touched its highest point in 15 years. Bond yields rise as their prices fall.
The dollar slipped 0.2 per cent lower against a basket of six peers, hovering around its highest level in two decades. The greenback has been elevated in recent months by its traditional status as a haven currency, and expectations of higher borrowing costs in the US while economic conditions worsen in the UK and Europe on the back of an escalating energy crisis.
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