LDN - Business

Bonds calm as investors hope for subdued U.S. payrolls data

[October 06, 2023] By Huw Jones

LONDON (Reuters) - Bonds were calmer on Friday after a pause in a relentless sell-off on 'higher for longer' interest rate worries, helping shares edge up as investors hoped for a subdued U.S. payrolls number.

The firmer dollar was heading for a 12-week winning streak after hitting its best level in about 11 months earlier in the week.

After talk of oil hitting $100 a barrel, crude was up 0.3% at $84.31, but facing its steepest weekly decline since March, as markets worried that higher for longer rates would crimp global economic growth and hit fuel demand.

Ten-year U.S. Treasury yields were steady at 4.746% after climbing 55 basis points in a five-week-long selloff that has dragged on bond markets and appetite for risk-taking worldwide.

Although the MSCI All-Country stock index was 0.2% higher, it has lost about 8% since its July peak, leaving it about 7% ahead for the year.

Investors were trying to decipher the implications of a retreat in oil and big sell-off in bonds for the dollar and the future course of interest rates, analysts said.

"The market is in two minds at the moment," said Mike Hewson, chief market strategeist at CMC Markets.

In Europe, the STOXX 600 index rose 0.5%, up for a second straight session, but still on course for its third consecutive week of losses after hitting a six-month low this week, slashing its gains for the year to 4%.

Analysts said U.S. job growth is likely to have slowed moderately in September while unemployment probably retreated from a 1-1/2-year high, underscoring the economy's underlying strength amid rising headwinds as the year winds down.

Nonfarm payrolls, due at 1230 GMT, are forecast to increase 170,000 in September, with unemployment seen dipping to 3.7% from 3.8%.

Patrick Spencer, RW Baird vice chair of equities, said the decline in bond prices, accompanied by an increase in the stock market "fear index", had been historic and due more to worries about high government deficits than expectations of more rate hikes.

"I certainly think it's overdone. I think you have seen the peak in interest rates. We are talking about the duration, rather than higher rates," Spencer said.

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A man uses a laptop, under an electronic board showing stock visualizations, inside a brokerage building, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File photo

Firmer U.S. stock futures were also underpinning shares in Europe.

"Today’s U.S. labor market release will shape the near future, as market responsiveness this week shows the importance of every single piece of data related to employment," UniCredit bank analysts said.

YEN STEADIER

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.85%. Tokyo's Nikkei was down 0.3%.

Another round of bond selling would probably propel the dollar further along a weekly winning streak that is already its longest ever against the euro. The dollar index is up 12 weeks in a row, equalling a streak that ran from July to October 2014.

The run-up has the euro, at $1.0548, pinned near an 11-month low and sterling not far from a seven-month trough.

The dollar index was steady on Friday at 106.4.

"A push through 107 would provide technical evidence of trend continuation," said Capital.com analyst Kyle Rodda.

Surprisingly, only the beleaguered yen has showed much of a fight, since a sudden jump in the Japanese currency during London afternoon on Tuesday stoked speculation authorities had intervened.

Japanese money-market data showed no anomalies of a kind that might have accompanied intervention. But the move was eye-catching enough to keep traders on guard.

The yen was last steady at 148.92 per dollar.

Gold was also steady at $1,819 an ounce after nine days of losses driven by rising global bond yields. [GOL/]

(Reporting by Tom Westbrook; Editing by Shri Navaratnam and Clarence Fernandez)

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