- Markets are cautious ahead of the US non-farm payrolls report
- Investors are looking for more signs of China’s reopening
- US income declines for 3rd day in a row
- The euro is at the highest exchange rate in 5 months against the dollar; yen to a 3-month high
LONDON, Dec 2 (Reuters) – European shares opened lower, Treasuries held on to gains and the dollar suffered heavy losses on Friday ahead of U.S. non-farm payrolls data, a sign for investors looking for more signs of rate policy. is the next big test. Transition from the Federal Reserve.
The overnight data, including a drop in U.S. jobs and a drop in U.S. manufacturing activity, raised fresh hopes for an easing of cost pressures and added evidence that the Fed’s rate hikes could cool the economy.
But signs of the Fed’s shift in tone failed to allay broader economic concerns. European Central Bank President Christine Lagarde warned on Friday that the fiscal policies of some European governments could lead to excess demand and that fiscal and monetary policies must work in sync for sustained, balanced economic growth.
Bruno Schneller, managing director of INVICO Asset Management, said that while stocks have rallied recently, the most important factor is quantitative tightening — the process by which the Fed reduces the amount of bonds on its balance sheet.
“Global markets have focused on the Fed’s pace of growth,” Schneller said.
“We think the damage has not yet been paid. All central bank liquidity flowing into and out of the economic system is 70% correlated with stock market returns, and it will be difficult to deal with the flow of liquidity.”
Schneller expected stock markets to fall 10% by the end of the year and further down by the end of the first quarter of 2023.
European shares were lower, with London’s FTSE (.FTSE) up 0.3%, German shares (.GDAXI) slightly higher, and France’s blue chip CAC 40 (.FCHI) down 0.31%.
US futures showed open for Wall Street stocks. U.S. stocks ended mixed on Thursday after a big rally the day before, with Fed Chairman Jerome Powell’s comments not sounding as outlandish as some had feared.
EXERCISE VOLROGS FROM NON-CUTTERS
Economists polled by Reuters expected data at 1330 GMT to show the US economy added 200,000 jobs in November, the smallest number since December 2020. Wages rose by 261,000 in October.
If non-farm payrolls rise by 50,000 to 150,000 in November, that will be good for bonds and stocks and keep the US dollar trading lower, said Alan Ruskin, macro strategist at Deutsche Bank.
Futures were fully priced in with a 50 basis point rate hike at the Fed’s December policy meeting, with rates now expected to peak at 5% to 5.25% by the middle of next year.
Investors were also watching for more signs that China is easing its zero-covid policy and whether China will contribute more to global growth next year amid a looming global recession.
China is set to announce in the coming days that it will relax its COVID quarantine protocols and scale back mass testing, sources told Reuters, a marked change in policy after anger over the world’s strictest curbs sparked widespread protests.
Treasury yields in bond markets fell for the third day in a row.
The yield on benchmark 10-year Treasuries fell to 3.51%, near the lowest since September’s turmoil in UK markets lifted yields in other major bond markets.
The two-year Treasury yield, pushed higher by traders’ expectations of higher Fed funds rates, fell to an almost two-month low of 4.204%, down nearly 5 basis points on the day.
In foreign exchange markets, the US dollar neared a five-month low against a basket of other major currencies. It was set for a weekly decline of 1.4%.
The euro hit a fresh five-month high of just above $1.05, while the Japanese yen rose to a fresh three-month high against the US dollar.
Prices on the oil market fell ahead of the main meeting of the producing countries over the weekend. U.S. crude futures fell to $81.07 a barrel after hitting a two-week high of $83.34 in the previous session on a softer dollar.
Brent oil futures also rose slightly and reached $86.90/barrel.
Spot gold rose to $1,800.10 an ounce.
Additional reporting by Stella Qiu; Edited by Kenneth Maxwell and Toby Chopra
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