LDN - Business

All eyes on US payrolls as dollar eases, oil gains

[September 01, 2023] By Huw Jones

LONDON (Reuters) - Global shares held onto slim gains on Friday as investors stuck to the sidelines ahead of U.S. payrolls data before the opening bell on Wall Street, hoping the figures will sway the Federal Reserve to hit the pause button on rates.

Oil rose 1% to hover above $87 a barrel as crude prices looked set to snap a two-week losing streak, buoyed by expectations of tightening supplies.

Falls in U.S. Treasury yields this week and some softer U.S. data weighed on the dollar, which was on track to snap a six-week winning run.

China stepped up measures to boost the economy, with top banks paving the way for further cuts in lending rates and Beijing also cutting the amount of funds institutions need to hold in foreign exchange reserves.

Investors also drew some comfort from an unexpected rebound in China manufacturing and signs that a downturn in euro zone manufacturing eased last month.

The MSCI All Country stock index rose 0.13%, up more than 13% for the year despite a battering in August when bond yields surged.

Economists polled by Reuters expect 170,000 more workers on non-farm payrolls in August as a flurry of recent employment-related data has suggested the labour market is starting to slow.

Kevin Thozet, a member of the investment committee at Carmignac, said he expects the Fed to leave interest rates unchanged in September, with a 50:50 chance of a hike when it meets again in November as steam starts to leave the jobs market.

"The U.S. economy is very resilient and keeps postponing the odds of a recession. It means that the soft landing scenario is gaining traction, there's less of a risk that the Fed would have to do too much. That is one reason why markets are well behaved," Thozet said.

Traders have pared bets for a Fed rate hike on Sept. 20 to 12% from 18% a week ago according to the CME Group's FedWatch tool.

Guy Miller, chief market strategist at Zurich Insurance Group, also expects the Fed to hit the pause button this month, with equities buoyed by bets of a soft landing in the U.S. economy after a string of rate hikes.

There are also doubts that the European Central Bank would hike rates when it meets this month as the euro zone economy sags, analysts said.

In Europe, the STOXX index of 600 companies was up 0.3%, on track to gain nearly 2% for the week and about 7.8% higher for the year.

U.S. stock index futures were about 0.3% firmer.

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People walk past a screen displaying the Hang Seng stock index at Central district, in Hong Kong, China October 25, 2022. REUTERS/Lam Yik/File Photo

'PROACTIVE' CHINA

All eyes are on Beijing's efforts to revive the crisis-hit property sector and weak consumption, which are weighing heavily on the ailing economy.

Meanwhile, China's factory activity surprisingly returned to expansion in August, beating estimates, a private-sector survey showed on Friday. Supply, domestic demand and employment improved, suggesting official efforts to spur growth might be having some effect.

Even though Beijing's support measures so far are not large in scope, the fact that policymakers are announcing steps more rapidly may be giving markets confidence that authorities are now being more proactive, said Redmond Wong, Greater China market strategist at Saxo Markets in Hong Kong.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3%, while Japan's Nikkei was also up 0.3%.

China's onshore yuan surged to a high of 7.2360 per dollar in the early Asian session, its strongest since Aug. 11, before last fetching 7.2625.

China's benchmark index was up 0.7%, with the real estate gauge narrowing earlier gains to 0.35%.

The yield on benchmark U.S. 10-year notes rose to 4.1083%.

Two-year Treasury yields, which are particularlysensitive to rate expectations, have declined about 20 basispoints this week to 4.86%, the biggest fall since mid-March.

On Friday the 2-year yield eased further slightly to 4.8535%. U.S. crude rose 1.2% to $84.63 per barrel and Brent was at $87.88, up 1.2%.

Spot gold was 0.2% firmer at $1,944 an ounce.

In cryptocurrencies, bitcoin unwound nearly all of its gains for the week, last trading at $25,990 after dropping 5% overnight after the Securities and Exchange Commission (SEC) delayed a decision on whether to approve several applications for spot bitcoin ETFs.

(Reporting by Huw Jones, additional reporting by Selena Li and Dhara Ranasinghe; Editing by Miral Fahmy, Kirsten Donovan)

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