Stocks drift as investors turn cautious ahead of U.S. payrolls
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[June 03, 2021] By
Tom Arnold and Swati Pandey
LONDON/SYDNEY (Reuters) - World stocks
clung close to record highs on Thursday as investors weighed inflation
concerns ahead of key U.S. economic data, while oil prices rose for a
third straight session.
Market sentiment was cagey as investors backed away from big bets before
the release on Friday of U.S. jobs data, which should offer further
clarity on whether the faster-than-expected pace of economic recovery
can be sustained and what that might mean for monetary policy.
In Europe, the broad Euro STOXX index was 0.2% down, drifting away from
record highs scaled on Tuesday, with Britain's FTSE 100 slipping 0.7%,
while Germany's DAX and the French CAC 40 were both down 0.2%.
There was a similar pullback in Asia, with MSCI's broadest index of
Asia-Pacific shares outside Japan shedding 0.2% after reaching
three-month highs on Wednesday.
In Japan, the Nikkei share average rose 0.4%, while Australian shares
climbed to all-time highs as investors cheered stronger-than-expected
economic growth data released on Wednesday.
The MSCI world equity index, which tracks shares in 49 countries,
hovered in and out of positive territory, below Tuesday's record high.
U.S. futures pointed to a dip on Wall Street at the open.
While broader stock markets remain close to record highs, the momentum
seen earlier in the year has ebbed as investors worry a
stronger-than-expected rebound from COVID-19 means higher inflation and
sooner-than-expected monetary policy tightening.
A weekly U.S. unemployment report and May private payrolls data on
Thursday will be followed by the monthly jobs numbers on Friday.
Investors will be looking for signs of an economic rebound and rising
inflation.
Adding to inflation fears, oil prices hit the highest level since
September 2019 on expectations for a surge in fuel demand later this
year, particularly in the United States, Europe and China when major
producers step up supply discipline.
So far though, "increases in inflation expectations have coincided with
equities performing well recently," said Oliver Jones, senior markets
analyst at Capital Economics.
"In general, we suspect that these conditions will remain in place for a
while longer."
Capital Economics forecasts that real global output will grow at the
fastest rate in nearly 50 years this year.
"While it is possible that major central banks eventually have to
tighten policy faster than is widely expected if inflation does not fall
back in the way they are anticipating, it will be hard to tell if this
is happening until next year at the earliest," Jones noted.
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A passersby wearing a protective face mask is reflected on screen
displaying the Japanese yen exchange rate against the U.S. dollar
and stock prices at a brokerage, amid the coronavirus disease
(COVID-19) outbreak, in Tokyo, Japan November 6, 2020. REUTERS/Issei
Kato
Investment managers are also becoming increasingly worried, with BlackRock
Founder Larry Fink the latest to warn that the market was underestimating the
risk of higher inflation.
Philadelphia Fed Bank President Patrick Harker also restated his call that "it
may be time to at least think about tapering our $120 billion in monthly
Treasury bond and mortgage-backed securities purchases."
The Fed has already announced it would begin unwinding the corporate bond
holdings it acquired last year to calm credit markets at the height of the
pandemic.
In Australia, the central bank is expected to begin tapering its pandemic
emergency stimulus from next month when investors believe it would announce not
extending its three-year yield target beyond the April 2024 bond.
European Central Bank (ECB) chief Christine Lagarde said on Wednesday the ECB
will support the euro zone "well into" its recovery from a pandemic-induced
double dip recession.
Those comments helped euro zone bond yields hold near record lows on Thursday.
Germany's 10-year yield, the benchmark for the bloc, was up less than a basis at
-0.19%. [L5N2NL1IG]
In the U.S., 10-year Treasury yield were also steady ahead of the U.S. economic
data release.
Moves in currency markets have been limited with the dollar index and other
major pairs staying in tight ranges.
The dollar index, which measures the greenback against a basket of major
currencies, rose to 90.112, having found strong support around the 89.946 mark
in recent sessions after falling 2% in April and a further 1.6% in May.
Against the euro the dollar traded 0.2% higher at $1.2183 and it crept a
fraction higher on Antipodean currencies.
Brent rose 0.4% to $71.62 a barrel, after earlier reaching the highest since
September 2019. U.S. crude futures went as high as $69.40, the highest since
October 2018.
Spot gold was down 0.1% to $1,892.26 per ounce.
(Editing by Sam Holmes and Toby Chopra)
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