LDN - Business

World markets cheer bumper tech earnings as US jobs report looms

[February 02, 2024] By Naomi Rovnick and Dhara Ranasinghe

LONDON (Reuters) - Bumper tech earnings buoyed world stocks on Friday ahead of key U.S. jobs data later in the day that traders are hoping could sway the Federal Reserve towards rate cuts.

U.S. stock futures tipped, Wall Street's S&P 500 share index to open 0.5% higher and the tech heavy Nasdaq 100 to gain 1%.

Shares in Meta Platforms raced 17% higher in pre-market trade after the Facebook owner on Thursday evening rewarded investors with its first-ever dividend

Amazon.com also rose 7% in pre-market dealings after its quarterly results impressed investors, underscoring how moves in big U.S. tech groups with huge valuations can have an outsized influence on market sentiment.

In Europe, the Stoxx 600 share index added 0.6%.

European stocks managed to rally despite a big Chinese market selloff caused by the lack of a hoped-for government stimulus, as well as stress in U.S. regional banks and commercial property.

China shares fell to new five-year lows on Friday and posted their worst weekly drop in five years, with the Shanghai Composite 1.5% lower on the day and down 6.2% for the week, its largest such loss since October 2018. The blue-chip CSI300 hit a five-year low.

Almost a year after the failure of California's Silicon Valley Bank heightened concern about the balance sheet health of smaller U.S. lenders, New York Community Bancorp this week reported increased stress in its commercial real estate portfolio.

And in Tokyo on Friday, shares in Aozora Bank slumped for a second straight session to bring its weekly loss to 33%, after provisioning for U.S. office loan losses.

"The market is on happy pills and as long as investors continue to believe there will be rate cuts this year it will side-pocket all these risks," said Noel O'Halloran, chief investment officer of KBI Global Investors.

"Investors think we are going to have rate cuts, inflation dropping, a miraculous soft landing that doesn't do any damage to earnings, and areas of the market like technology priced on the belief the stocks can grow miraculously to the sky."

HERE COME PAYROLLS

Focus across world markets will turn to the release of the January U.S. jobs report at 1330 GMT.

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A man walks past an electronic board showing Japan's Nikkei average and stock prices outside a brokerage, in Tokyo, Japan, March 17, 2023. REUTERS/Androniki Christodoulou/File Photo

Economists polled by Reuters estimated the U.S. economy added 180,000 new jobs last month after creating 216,000 in December. Annual wage growth, meanwhile, is forecast to have maintained its solid pace last month.

The Fed Reserve on Wednesday signalled that rates would move lower this year but pushed back against expectations for an imminent rate cut.

Reflecting the still sizeable cuts expected to come this year - about 145 bps are priced in - and the jitters over regional U.S. banks adding to safe-haven demand, longer-term Treasuries were headed for the best week since mid December.

Ten-year Treasury yields were 2 basis points higher on Friday in at around 3.89%, but are still down a whopping 28 bps for the week.

The rate sensitive two-year yield was up 4 bps at 4.23%, but down 15 bps on the week.

That slide in bond yields kept the dollar on the back foot. The dollar index was a slightly lower on the day and on track for its first weekly decline of the year.

"Despite the Federal Reserve pushing back against prospects of a March cut, interest rates have still come lower. That may be a function of investors watching U.S. regional banks remain under pressure," said Chris Turner, global head of markets at ING.

The euro was a touch firmer at $1.0881, while sterling was perched at $1.276, having rallied 0.5% on Thursday after the Bank of England pledged to tread carefully about rate cuts.

Brent crude futures were flat at around $78.68 a barrel, after falling more than 2% the previous day, and U.S. West Texas Intermediate crude a touch softer at $73.74 a barrel.

Safe-haven gold was flat at $2,053.

(Reporting by Naomi Rovnick and Dhara Ranashinghe. Additional reporting by Stella Qiu.; Editing by Christina Fincher)

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