European and US futures were higher by late morning on Friday ahead of the release of closely watched data on demand for jobs in the US, with investors looking for signs that repeated interest rate rises are starting to cool the world’s largest economy.
The regional Stoxx Europe 600 added 1.5 per cent, recouping the 0.9 per cent loss it made in the previous session. Chinese stocks soared, extending their weekly gains on hopes that Beijing would change its longstanding zero-Covid policy. The CSI 300 index of Shanghai- and Shenzhen-listed shares gained 3.2 per cent.
Investors were looking ahead to the monthly release from the US Bureau of Labor Statistics, which is expected to announce that US jobs growth cooled for the third month.
The US is forecast to have added 200,000 positions in October, according to a consensus estimate compiled by Bloomberg, down from 263,000 in September and 315,000 in August. The unemployment rate is predicted to rise to 3.6 per cent, just above its pre-pandemic low. Wages are predicted to have risen 0.3 per cent, in line with September’s increase.
Contracts tracking Wall Street’s benchmark S&P 500 added 0.8 per cent, while those tracking the tech-heavy Nasdaq 100 climbed 0.8 per cent.
Derek Halpenny, head of research for global markets at MUFG bank, said the Federal Reserve would find it hard to justify pausing its monetary policy tightening until labor demand slows, and that wage growth remained the “primary variable that could turn a transitory inflation shock into something more sustainable and problematic.”
The Fed implemented its fourth consecutive 0.75 percentage point rate rise on Wednesday as it attempts to bring inflation down to its target of 2 per cent. Fed chair Jay Powell’s warning that recent data suggest “the ultimate level of interest rates will be higher than expected” sent US stocks lower and led to a sharp jump in US short-term government bond yields.
The two-year Treasury yield, which is particularly sensitive to the short-term monetary policy expectations, on Thursday rose to its highest level since mid-2007. The yield on the note added 0.05 percentage points to hit a fresh high of 4.75 per cent on Friday. Yields rise when prices fall.
The yield on the 10-year US Treasury gained 0.03 percentage points to 4.15 per cent. Longer-term debt normally yields more than short-term notes, and so-called inversions of the yield curve have preceded every US recession for the past 50 years.
Reports that US regulators had completed a review of Chinese audit reports earlier than expected added to investor optimism around Chinese stocks, with the Hang Seng in Hong Kong closing up 5.4 per cent.
London’s FTSE 100 gained 1.3 per cent a day after the Bank of England increased borrowing costs by 0.75 percentage points. At the same time, the central bank said the British economy was headed for a recession that is forecast to last at least all of the next year, and that interest rates will not rise as much as markets expect.