Equity rally stalls as traders await US jobs data: Markets wind down

(Bloomberg) – Global stocks were in retreat on Friday, stabilizing after recent strong gains as traders awaited the monthly US jobs report for clues about the Federal Reserve’s next policy steps.

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The European Stoxx 600 index fell after two days of gains that put it on course for a seven-week uptrend. S&P 500 and Nasdaq 100 futures contracts also slipped, although both underlying indices are poised for a second week of gains.

Stocks received a boost this week from a weakening of China’s strict Covid zero stance and Fed Chairman Jerome Powell’s signals that the pace of rate hikes is slowing. Bets on where the US central bank rate will peak have now dipped below 4.9%, according to swap markets. The current benchmark is in a range of 3.75% to 4%.

However, many economists believe Friday’s jobs report may fall short of the tipping point Fed officials seek in their battle to curb inflation. The median projection in a Bloomberg poll is that payrolls will increase by 200,000 in November, cooling only slightly from the previous month.

Others point to signs that sharp rate hikes will push more economies into recession.

“The consensus is that the recession is coming, but stocks can’t bottom out before it starts, inflation won’t fall fast, so central banks can’t blink, reopening China will be a complicated process, and Europe remains complicated,” Barclays Plc strategist Emmanuel Cau wrote in a statement.

Recession fears became more pronounced after Thursday’s data showed November factory activity eased in a number of countries, with US manufacturing contracting for the first time since May 2020.

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

Bank of America Corp. strategists highlighted the cooling labor market as one reason to favor bonds over stocks. They join a chorus of bears including JPMorgan Chase & Co. and Goldman Sachs Group Inc. who warn of a drop in shares early next year amid the specter of an economic downturn.

“We are selling risk rallies from here,” BofA strategists said, warning that unemployment will replace inflation as the top concern in 2023.

Bets on falling rates hike pushed the dollar lower, fueling a rebound in low-yielding G-10 currencies like the yen and euro. The greenback slid for a fourth consecutive day against a basket of currencies, while 10-year Treasury yields held just below their 2.5-month lows.

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

Investors are awaiting the early December annual convention of the Communist Party of China’s top decision-making body, which should signal a pragmatic approach to Covid controls while emphasizing the need to stimulate economic growth.

Elsewhere, the South African rand rebounded, offsetting part of Thursday’s 2.6% drop. The rand bucked this week’s rally in emerging market currencies due to the political turmoil surrounding President Cyril Ramaphosa.

Oil slipped but headed for its biggest weekly gain in nearly two months, benefiting from Chinese curbs easing, Biden administration calls to halt sales from US strategic reserves and a decision by a group of producers OPEC to cut crude oil supply to the maximum since 2020.

Key events this week:

Some of the major moves in the markets:

Actions

  • The Stoxx Europe 600 was down 0.2% as of 9:40am London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures fell 0.2%

  • Dow Jones Industrial Average futures fell 0.1%

  • MSCI Asia Pacific Index fell 0.4%

  • MSCI Emerging Markets Index fell 0.3%

Currencies

  • Bloomberg Dollar Spot Index fell 0.2%

  • The euro was little changed at $1.0524

  • The Japanese yen rose 1.1% to 133.80 to the dollar

  • The offshore yuan rose 0.3% to 7.0187 to the dollar

  • The British pound rose 0.2% to $1.2267

Cryptocurrencies

  • Bitcoin climbed 0.3% to $16,978.9

  • Ether rose 0.2% to $1,279.27

Bonds

  • The 10-year Treasury yield rose two basis points to 3.52%

  • German 10-year yield fell three basis points to 1.78%

  • UK 10-year yield fell four basis points to 3.06%

Goods

This story was produced with assistance from Bloomberg Automation.

–With assistance from Rob Verdonck.

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