Equities inch up; dollar heads for third weekly gain ahead of US payrolls

[August 04, 2023]  By Amanda Cooper and Elizabeth Howcroft

LONDON (Reuters) - Global equities inched higher on Friday, while the dollar headed for a third weekly gain as investors assessed U.S. economic data that largely showed a resilient labor market ahead of the all-important monthly jobs report.

The MSCI All-World index rose 0.1% on the day but was still headed for its biggest weekly drop in five months, thanks in part to a surge in government bond yields this week after more data pointed to slowing inflation and the prospect of a deluge of U.S. Treasury supply.

Investor attention will be squarely on the July U.S. nonfarm payrolls report, with a Reuters survey of 80 economists expecting payrolls to have increased by 200,000 last month, after rising 209,000 in June.

Economists who have long been forecasting a downturn by the fourth quarter of this year are increasingly becoming convinced that the "soft-landing" scenario for the economy envisaged by the U.S. Federal Reserve is now possible.

"Today’s U.S. payrolls data is likely to continue to showcase the resilience of the U.S. economy," Michael Hewson, chief market analyst at CMC Markets, said in a note.

Data showed the number of Americans filing new claims for unemployment benefit rose slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remained tight.

Futures on the S&P 500 rose 0.3%, while those on the Nasdaq 100 gained 0.5%, suggesting earnings from technology bellwethers could give the index a boost later on.

Amazon reported sales growth and profit that beat analyst estimates, while Apple forecast a sales slump to continue into the current quarter.

The benchmark indices closed little changed the previous day after a choppy trading session, as investors weighed up the implications of rising Treasury yields along with the latest batch of economic data and earnings.

"It’s a very fragile market," said Francesco Sandrini, head of multi-asset strategy at Amundi.

The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

"The market is quite nervous at the moment, the very low volatility that has been prevailing so far now is facing a reality check."

The dollar meanwhile rose 0.1% against a basket of major currencies, and headed for its third successive weekly gain. It has made the most headway against some of this year's better-performing currencies, such as the Australian dollar, which has lost 1.4% this week, or the pound, which is heading for a decline of 1.3% after the Bank of England delivered a smaller rate rise on Thursday than many had hoped for.

China's yuan, which is set for a 0.6% loss this week against the dollar, gained some respite on Friday after an official said on Friday the central bank would use policy tools flexibly to ensure reasonably ample liquidity in the banking system.

Investors have been hoping policymakers will deliver more broad-based stimulus to boost the post-pandemic recovery as the world's second-largest economy struggles with weak demand at home and abroad.

Another layer of support for the U.S. dollar came from the Treasury market, where 10-year yields held steady around nine-month highs, at 4.19%, while 30-year bond yields hovered at 4.28%, set for their biggest weekly rise this year.

Rating agency Fitch this week surprised markets by stripping the United States of its prized triple-A credit rating and cited the country's deteriorating fiscal position as one of the key drivers, thrusting the government's finances into the spotlight.

Earlier in the week, the U.S. Treasury said it expects to borrow just over $1 trillion in the third quarter of this year alone, $273 billion more than its May estimate.

Oil prices headed for a sixth straight weekly gain, driven up by the prospect of reduced supply from Saudi Arabia and Russia. U.S. crude rose 0.7% to $82.12 a barrel, while Brent rose 0.7% to $85.70.

(Additional reporting by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman, Kirsten Donovan)

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