LDN - Business

Stock market rally pauses as US jobs data looms

[June 07, 2024] By Naomi Rovnick

LONDON (Reuters) -Global stocks hovered at a record high on Friday as traders waited on crucial U.S. monthly jobs data for clues about whether the Federal Reserve would soon follow euro zone and Canadaian interest rate cuts.

MSCI's world share index was steady after touching an all-time high on Thursday, boosted by a frenzy for artificial intelligence stocks that lifted chipmaker Nvidia's valuation beyond $3 trillion earlier in the week.

Futures markets also implied a cautious stock market open in New York as contracts on the S&P 500 share index were trading sideways, while traders hit the pause button on a U.S. government bond rally.

Friday's U.S. non-farm payrolls report could support or derail a dominant market narrative that the jobs market is softening enough for inflation to fall consistently.

Economists expect the world's largest economy added 185,000 new jobs last a month, a relatively modest gain that traders will likely celebrate after data on Wednesday showed U.S. job openings fell to their lowest in more than three years in April.

"If we see 180,000 or a slight uptick in the unemployment rate, this rally will start again," said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

"But if we see a bigger miss or a bigger beat, then the situation would be quite different. The market is trying to see whether the current slowdown in U.S. economic data is Fed- supportive or problematic for earnings."

Money market pricing implies traders see the Fed cutting rates from their 23-year high of 5.25-5.5% by September, following a slew of similar moves across major economies.

The European Central Bank on Thursday made its widely expected decision to cut its deposit rate from a record 4% to 3.75%, sparking a mild cross-asset reaction on the day although the prospect of easier borrowing conditions for households and businesses has buoyed the region's equities for months.

Europe's broad STOXX 600 share index, which traded flat in early dealings on Friday, has gained 1.4% this week and about 10% year-to-date.

The Bank of Canada on Wednesday became the first G7 nation to trim its key policy rate. Sweden's Riksbank and the Swiss National Bank have also kicked off their monetary easing cycles, supporting the global risk rally.

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Passersby walk in front of an electric screen displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan March 21, 2024. REUTERS/Issei Kato/file photo

"You've got two of the G7 cutting rates ... it certainly opens the door further to the Fed," said Tony Sycamore, a market analyst at IG. "We're not in the home straight, but we've certainly rounded the corner."

The benchmark 10-year U.S. Treasury yield, a benchmark for borrowing rates globally, rose 2 basis points (bps) to 4.281% on Friday, having dropped from about 4.7% in late April. The two-year yield, which tracks interest rate expectations, was 2 basis points (bps) higher at 4.72%, after declining for six straight sessions until Thursday.

Euro zone bonds were lacklustre on Friday, with Germany's 10-year Bund yield rising 4 bps to 2.585%, as investors reacted to a message from ECB president Christine Lagarde on Thursday that further rate cuts were not guaranteed. Bond yields move inversely to prices.

Elsewhere, the dollar languished near an eight-week low against a basket of currencies, and was headed for a weekly loss of more than 0.5%. The euro was flat at $1.089 following a slight gain in the previous session.

In Asia on Friday, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2% and was on track to end the week nearly 3% higher. Chinese stocks dropped 0.5% after the Wall Street journal reported that Republican lawmakers wanted an import ban on Chinese battery suppliers linked to Ford and Volkswagen.

Japan's Nikkei fell 0.26% ahead of the Bank of Japan's policy meeting next week. Investors expect the BOJ to start reducing its massive government bond purchases in a further move to gradually call time on a long era of aggressive monetary stimulus that has caused the yen to plunge.

The yen steadied at 155.5 per dollar, remaining close to late April's 34-year lows.

Brent crude oil futures were flat at $79.88 per barrel. Spot gold dropped 1.7% to $2,335.47 an ounce.

(Additional reporting by Rae Wee in Singapore Editing by Jacqueline Wong and Christina Fincher)

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