LDN - Business

Global stocks stage rebound after selloff, U.S. jobs data awaited

[December 07, 2018] By Ritvik Carvalho

LONDON (Reuters) - Global stocks staged a modest rebound on Friday with Asian and European markets gaining after a selloff the previous day, while crude oil edged up after indications Russia would contribute a bigger output cut than previously suggested to producers.

The pan-European STOXX 600 index was up 1.1 percent by 1222 GMT, after falling as much as 3.2 percent during Thursday's rout, which was triggered by the arrest of the chief financial officer of Chinese smartphone-maker Huawei in Canada.

The arrest, coming on the heels of a 90-day trade truce between the United States and China, triggered fears that the dispute could escalate further and dented hopes for a resolution.

The MSCI All-Country World Index, which tracks shares in 47 countries, was up 0.3 percent on the day, on track to end the week down 2 percent.

Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips off 0.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan nudged up 0.1 percent, though that followed a 1.8 percent drubbing on Thursday. Japan's Nikkei added 0.8 percent.

Markets also face a test from U.S. payrolls data later in the session amid speculation that the U.S. economy is heading for a tough patch after years of solid growth.

E-Mini futures for the S&P 500 were last down 0.5 percent.

Federal Reserve Chairman Jerome Powell emphasized the strength of the labor market in remarks late on Thursday.

Economists polled by Reuters estimated that jobs rose by 200,000 in November after surging 250,000 in October. The data is due at 1330 GMT.

"Investors are increasingly anxious about the longevity of the economic cycle, given recent financial market weakness, and they are focusing more on the timing of the next global downturn and the various stresses this could expose," wrote HSBC economist James Pomeroy in a note.

"But for all of the volatility in the equity, credit and oil markets, most of the global economic data have stayed relatively sanguine. US data remain robust - with business optimism and job openings up at cycle highs, and the hard activity data are consistent with a robust pace of growth."

The mood in risk-asset markets brightened a little after the Wall Street Journal reported Fed officials were considering whether to signal a new wait-and-see mentality after a likely rate increase at their meeting in December.

That only added to recent speculation that the central bank was almost done hiking rates, given concerns about global growth and the disinflationary impact of collapsing oil prices.

Interest rate futures <0#FF:> rallied hard in massive volumes with the market now pricing in less than one hike next year. A month ago they had been betting on three increases.

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An investor sits in front of a board showing stock information at a brokerage office in Beijing, China, December 7, 2018. REUTERS/Thomas Peter

The news helped Wall Street pare steep losses and the Dow ended Thursday down 0.32 percent, while the S&P 500 lost 0.15 percent. The Nasdaq managed to advance 0.42 percent.

FLATTENED

Treasuries extended their rally, driving 10-year yields down to a three-month trough at 2.8260 percent, before last trading at 2.8827 percent.

Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.75 percent.

Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

"The sort of flattening of the yield curve that we have seen recently usually indicates that investors think the Fed is nearing the end of a tightening cycle, and that rate cuts may even be on the horizon," argued analysts at Capital Economics.

Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia.

The sea change in expectations took a toll on the U.S. dollar as bulls had been counting heavily on a steady widening rate differential to propel the currency.

The greenback was flat against a basket of currencies at 96.801, and fell to 112.83 yen from a 113.85 high at the start of the week. The euro was down 0.1 percent at $1.13735.

The cryptocurrency Bitcoin took a fresh spill, sinking almost 18 percent on the week to $3,396.19.

In commodity markets, gold firmed to near a five-month peak as the dollar eased and the threat of higher interest rates waned. Spot gold stood 0.3 percent higher at $1,240.73 per ounce.

Oil edged up after indications Russia would contribute a bigger output cut than previously suggested to an OPEC and non-OPEC deal, although prospects for an overall agreement still hung in the balance.

Brent futures rose 1.4 percent to $60.87 a barrel, while U.S. crude rose half a percent to $51.75.

(Reporting by Ritvik Carvalho; additional reporting by Marc Jones in London and Wayne Cole in Sydney; editing by Andrew Heavens)

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