Stocks Rally Pauses as Traders Await US Jobs Data: Markets Wrap

(Bloomberg) — Global stocks were on the backfoot on Friday, steadying after recent sharp gains as traders awaited the monthly US jobs report for clues on the Federal Reserve’s next policy steps.

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Europe’s Stoxx 600 index edged lower following two days of gains that have put it on track for a seven-week rising streak. Futures contracts on the S&P 500 and Nasdaq 100 also slipped, though both underlying indexes are set for a second week of gains.

Stocks got a boost this week from a softening in China’s stringent Covid zero stance and signals from Fed Chair Jerome Powell of a downshift in the pace of rate hikes. Bets on where the US central bank’s rate will peak have now dropped below 4.9%, according to swap markets. The current benchmark sits in a range between 3.75% and 4%.

However, many economists reckon Friday’s employment report may fall short of the turning point Fed officials are seeking in their battle to beat back inflation. The median projection in a Bloomberg survey calls for payrolls to rise 200,000 in November, cooling only slightly from the previous month.

Others point to signs that steep rate hikes will tip more economies into recession.

“Consensus is that recession is coming but equities cannot bottom before it starts, inflation won’t fall quickly so central banks can’t blink, China reopening will be a messy process, and Europe remains tricky,” Barclays Plc strategist Emmanuel Cau wrote in a note.

Recession concerns have become more pronounced after data on Thursday showed November factory activity sliding in a range of countries, with American manufacturing contracting for the first time since May 2020.

There are also signs of pressure on company earnings, with software maker Salesforce Inc. the latest to warn of slowing sales, while companies, ranging from Amazon.com to Ford Motor Co., have announced tens of thousands of job cuts. Chipmakers including Nvidia Corp., fell more than 0.5% in US premarket trading.

Bank of America Corp. strategists highlighted the labor market cooldown as one reason to prefer bonds to equities. They join a chorus of bears including JPMorgan Chase & Co. and Goldman Sachs Group Inc. who warn of equity declines early next year amid the specter of an economic recession.

“We’re selling risk rallies from here,” the BofA strategists said, warning unemployment would replace inflation as the main worry in 2023.

The ebbing rate hiking bets have pushed the dollar lower, fueling a rebound in lower-yielding G-10 currencies such as the yen and euro. The greenback slipped for the fourth straight day against a basket of currencies, while ten-year Treasury yields held just off 2-1/2-month lows.

Earlier, a gauge of Asian shares dropped for the first time in four days, led by Japan, where the yen’s five-day rally increased downward pressure on stocks.

Investors are watching for the annual early-December convention of the Chinese Communist Party’s top decision-making body, which is expected to signal a pragmatic approach toward Covid controls, while stressing the need to boost economic growth.

Elsewhere, South Africa’s rand rebounded, paring some of Thursday’s 2.6% drop. The rand has bucked this week’s upswing in emerging market currencies because of political turmoil swirling around President Cyril Ramaphosa.

Oil slipped but headed for its biggest weekly gain in almost two months, benefiting from looser Chinese curbs, calls by the Biden administration to halt sales from US strategic reserves and an OPEC producers’ group decision to cut crude supply by the most since 2020.

Key events this week:

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 0.2% as of 9:40 a.m. London time
Futures on the S&P 500 were little changed
Futures on the Nasdaq 100 fell 0.2%
Futures on the Dow Jones Industrial Average fell 0.1%
The MSCI Asia Pacific Index fell 0.4%
The MSCI Emerging Markets Index fell 0.3%

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro was little changed at $1.0524
The Japanese yen rose 1.1% to 133.80 per dollar
The offshore yuan rose 0.3% to 7.0187 per dollar
The British pound rose 0.2% to $1.2267

Cryptocurrencies

Bitcoin rose 0.3% to $16,978.9
Ether rose 0.2% to $1,279.27

Bonds

The yield on 10-year Treasuries advanced two basis points to 3.52%
Germany’s 10-year yield declined three basis points to 1.78%
Britain’s 10-year yield declined four basis points to 3.06%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.