Stocks rally pauses as traders await US jobs data

Europe’s Stoxx 600 index opened weaker, following two days of gains that have put it on track for a seven-week rising streak, while futures for the S&P 500 and Nasdaq 100 also slipped. A gauge of Asian shares dropped for the first time in four days, led by Japan, where the yen’s five-day rally increased downward pressure on stocks. 

Stocks got a boost this week from a softening in China’s stringent Covid zero stance and signals from Fed Chair Jerome Powell of a downshift in the pace of rate hikes. Bets on where the US central bank’s rate will peak have now dropped below 4.9%, according to swap markets. The current benchmark sits in a range between 3.75% and 4%.

However, many economists reckon Friday’s employment report may fall short of the turning point Fed officials are seeking in their battle to beat back inflation. The median projection in a Bloomberg survey calls for payrolls to rise 200,000 in November, cooling only slightly from the previous month. 

Others point to signs that steep rate hikes will tip more economies into recession.

“Consensus is that recession is coming but equities cannot bottom before it starts, inflation won’t fall quickly so central banks can’t blink, China reopening will be a messy process, and Europe remains tricky,” Barclays Plc strategist Emmanuel Cau wrote in a note. 

Recession concerns have become more pronounced after data on Thursday showed November factory activity sliding in a range of countries, with American manufacturing contracting for the first time since May 2020. 

The ebbing rate hiking bets have pushed the dollar lower, fueling a rebound in lower-yielding G-10 currencies such as the yen and euro. The dollar selloff moderated on Friday, with the greenback flat against a basket of currencies. Ten-year Treasury yields also rose modestly after reaching 2-1/2-month lows. 

Stock markets in Hong Kong and mainland China dropped after three days of gains. Investors will watch for the annual early-December convention of the Communist Party’s top decision-making body, which is expected to signal a pragmatic approach toward Covid controls, while stressing the need to boost economic growth.

Elsewhere, South Africa’s rand firmed slightly after Thursday’s 2.6% drop. The rand has bucked this week’s upswing in emerging market currencies because of political turmoil swirling around President Cyril Ramaphosa. 

Oil headed for its biggest weekly gain in almost two months, benefiting from looser Chinese curbs, calls by the Biden administration to halt crude sales from US strategic reserves and an OPEC producers’ group decision to cut supply by the most since 2020.

Key events this week:

• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.5% as of 8:29 a.m. London time
• Futures on the S&P 500 fell 0.2%
• Futures on the Nasdaq 100 fell 0.3%
• Futures on the Dow Jones Industrial Average fell 0.1%
• The MSCI Asia Pacific Index fell 0.5%
• The MSCI Emerging Markets Index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.1% to $1.0531
• The Japanese yen rose 0.7% to 134.43 per dollar
• The offshore yuan rose 0.1% to 7.0290 per dollar
• The British pound rose 0.3% to $1.2279

Cryptocurrencies

• Bitcoin rose 0.1% to $16,952.64
• Ether was little changed at $1,275.69

Bonds

• The yield on 10-year Treasuries advanced two basis points to 3.52%
• Germany’s 10-year yield was little changed at 1.81%
• Britain’s 10-year yield declined two basis points to 3.08%

Commodities

• Brent crude fell 0.3% to $86.63 a barrel
• Spot gold fell 0.1% to $1,801.10 an ounce