LDN - Business

Stocks, gold gain as investors stay cheery on rate outlook

[December 06, 2023] By Amanda Cooper

LONDON (Reuters) -Global equities rose on Wednesday after U.S. employment data reinforced investors' convictions that rates may soon start to fall, which has pushed down bond yields and lifted gold in the past few trading days.

The flow of trade across the markets was relatively calm, with measures of volatility steady around their recent lows, as investors waiting for a read of U.S. private sector job growth later in the day.

A separate look at job openings on Tuesday showed a bit more softness than expected but not so much as to point to a steeper slowdown in employment, while activity in the U.S. services sector held up last month.

U.S. Treasury yields held roughly around their lowest in three months, while futures markets show traders are placing a two-in-three chance of a rate cut by March, which in turn gave gold another boost and underpinned stocks.

The MSCI All-World was up 0.2%, while in Europe, the STOXX 600 rose 0.2%. German's DAX, which contains a number of tech and industrial heavyweights, hit record highs.

Next up on the data front is the ADP survey of U.S. private sector employment, which is forecast to show a rise of 130,000 in November, according to a Reuters poll.

"We are starting see increasing evidence that the U.S. jobs market is starting to slow, with vacancies falling to their lowest level since March 2021 and with the last two ADP reports adding a combined 202k new jobs as private sector hiring slows," CMC Markets chief market strategist Michael Hewson said.

"October saw 113,000 jobs added - an improvement on September - and November is expected to see an improvement on that to 130,000, given that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period so we’re unlikely to see any evidence of cracking in the U.S. labor market this side of 2024," he said.

RATE-CUT BOUNCE

U.S. stock futures pointed higher, with the tech-heavy Nasdaq indicated up 0.3%, while S&P 500 futures rose 0.22%. U.S. 10-year yields were up 2 basis points at 4.195%, having hit their lowest since early September the day before.

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The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, October 27, 2023. REUTERS/Staff/File Photo

The "selloff in yields across the curve is strong evidence of the intense focus the market has on this week's labor market data," with the ADP employment report due on Wednesday and non-farm payrolls on Friday, said IG analyst Tony Sycamore.

With markets all but certain the Fed's next move is a cut, dovish rhetoric from European Central Bank officials and the Reserve Bank of Australia's decision to hold policy steady on Tuesday have stoked bets for a peak in rates globally. The Bank of Canada is widely expected to adopt a wait-and-see attitude on Wednesday as well.

That has supported the U.S. currency's rebound from last week's nearly four-month low, with the U.S. dollar index steady around 104.00 on Wednesday, compared with a trough of 102.46 a week ago.

"The USD weakened when the Federal Reserve looked like they were cutting while other central banks were holding tight," said James Kniveton, a senior corporate FX dealer at Convera in Melbourne. "Now that looks to be changing, and other central banks are following the Fed's lead."

Against the yen, the dollar rose 0.16% to 147.37 and held steady against the euro at $1.0788.

Bitcoin edged up 0.3% to $44,170, having risen to as much as $44,490 overnight, buoyed by both Fed rate cut expectations and speculation U.S regulators will soon approve exchange-traded spot bitcoin funds.

Gold rose 0.1% to $2,022 an ounce, stabilizing after Monday's surge to a record $2,135.40.

Crude fell another 1% on Wednesday to five-month lows, against a backdrop of a worsening demand outlook from China and doubts about the impact of OPEC cuts.

Brent crude futures fell 1.1% to $76.37 a barrel, while U.S. futures fell by the same amount to $71.53.

(Additional reporting by Kevin Buckland in Tokyo; Editing by Jacqueline Wong and Angus MacSwan)

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