LDN - Business

Markets in neutral ahead of U.S. payrolls, Credit Suisse jumps

[October 07, 2022] By Huw Jones

LONDON (Reuters) - Markets drifted sideways on Friday, with investors waiting for U.S. non-farm payrolls figures before the opening bell on Wall Street, though holding out little hope they will alter the prospect of more hefty interest rate rises to come.

U.S. stock index futures were little changed.

Credit Suisse shares gained 6.8% after it announced it will buy back up to 3 billion Swiss francs of debt following steep falls in its stock price on unsubstantiated rumours that its future was in doubt.

Stock indexes largely erased initial losses on chipmakers Samsung and AMD flagging a slump in demand, blaming inflation, higher interest rates and the impact of Russia's invasion of Ukraine.

Weak German industrial production in August provided further evidence that Europe's biggest economy continues to slide into recession, ING bank said. The dollar was flat, but crude oil prices rose 1% as output cuts loomed.

Risk-averse investors piled into cash at the fastest weekly rate since April 2020 in the week to Wednesday, BofA Global Research said.

"With no concrete signs yet of peak inflation having been reached, coupled with a labour report today that is unlikely to suggest to the Fed that its current policy stance is having a material negative impact on growth, the outlook for equities, bonds and risk appetite in general, continues to look downbeat," Stuart Cole, head macro economist at Equiti Capital, said.

In Europe, the STOXX index of 600 leading companies was slightly firmer, heading for its largest weekly gain since late July, but still down about 19% for the year.

The immediate focus is on earnings for the United States and whether consumers are holding up in the teeth of rate hikes, Patrick Spencer, vice chairman of equities at Baird Investment Bank, said.

"Bank earnings start next week from Morgan Stanley, JP Morgan, Wells Fargo and Citi. That's going to be a pretty good indication because they all have big credit card businesses and they'll give us a very good indication on the consumer," Spencer said.

The MSCI All Country stock index fell 0.2%, leaving it down about 24% for the year.

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The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie

U.S. PAYROLLS

A Reuters poll predicts 250,000 jobs were created in September after rising 315,000 in August, while the unemployment rate is expected to remain at 3.7%.

"Today, it is the US labor market report, which is likely to paint a picture of some softening, but not to an extent that can be expected to fuel any twist in the rhetoric of US central bankers. Next week, it all comes down to the US inflation release," UniCredit analysts said in a note to clients.

In Asia, Japan's Nikkei dropped 0.7%, while South Korea's Kospi slipped 0.2%, weighed partly by a decline in Samsung shares.

Hong Kong's Hang Seng was 1.4% lower, with its tech stocks tumbling 3%. Mainland Chinese shares remain closed for the final day of the Golden Week holiday.

Fed officials showed no intention of backing down from the most aggressive rate hike campaign in decades, with Fed Governor Lisa Cook, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari all emphasising that the inflation fight was ongoing and they were not prepared to change course.

Markets currently price in an 85.5% chance of a 75-basis-point increase for next month's Federal Open Market Committee meeting, and 14.5% odds for a half-point bump.

The yield on the benchmark 10-year Treasury note was at 3.8388%.

The dollar index, which tracks the greenback versus a basket of six major peers, was little changed at 112.117 following a 1.84% two-day rally from a two-week low.

Sterling was up 0.4% at $1.12, though still within striking distance of this week's low against the dollar. The euro was little changed at $0.9803.

Crude oil on Friday steadied after a rapid climb triggered by OPEC+ output cuts announced this week. [O/R]

Brent crude rose 1% to $95.35 a barrel. WTI crude futures were also up 1% at $89.37 a barrel.

(Reporting by Huw Jones, Lucy Raitano, Kevin Buckland; Editing by Christopher Cushing, Elaine Hardcastle and Andrew Heavens)

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