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GLOBAL MARKET OVERVIEW
Last updated: February 5, 2016 9:22 am
US jobs data keep markets in thrall
Michael Hunter and Paul McClean in London
Friday 09.20 GMT Equities indices are steady ahead of Friday’s highly anticipated US jobs report, which will exert an important influence on the Federal Reserve’s policy outlook.
Weak data and warnings from US policymakers about tightening financial conditions have quashed expectations the Federal Reserve will raise interest rates in March. That has caused the US dollar to weaken, and the flipside appreciation of the yen, euro and renminbi is weighing on exporters.
European stock markets are making a stronger start to trade than a lacklustre lead-in from Asia suggested. London’s FTSE 100 is up 0.3 per cent, led by the financial sector, which is bouncing back after a difficult start to the month. The pan-European Stoxx 600 is adding 0.1 per cent.
Tokyo’s Nikkei 225 is down 1.3 per cent, its fourth straight day of declines.
There are eye-catching moves in Japanese sovereign debt markets.
Japan’s 10-year government bond yield is near zero, with pressure on stocks and the yen’s rebound setting the tone to trade. The yield on the benchmark paper fell 3 basis points to 0.025 per cent and a fresh record low. Negative yields indicate that investors are willing to take a nominal loss in return for safe storage of their cash, and while a record amount of government debt maturing over shorter periods has registered negative yields, they are rarely seen on paper of 10-year maturity.
It came just one week after the Bank of Japan surprised markets with the introduction of sub zero interest rates.
Chinese equities are approaching an extended break for the Lunar New Year in mixed fashion. In Hong Kong, where the market will close for three days, the Hang Seng is up 0.6 per cent, while in China, which will be shuttered for a full week, the Shanghai Composite was down 0.6 per cent.
Oil, a focal point for markets this year, is drifting. Brent crude, the international benchmark, is down 0.8 per cent at $34.18 a barrel, while West Texas Intermediate is up 0.1 per cent at $31.76. Two weeks ago, oil prices hit their lowest levels since late 2003.
The US dollar is bouncing higher against other major currencies. It is up 0.5 per cent against sterling at $1.4516, and 0.2 per cent stronger against the euro and the yen.
The Fed’s decision to raise interest rates in December and expectations for further tightening of monetary policy have underpinned the dollar. But that is hurting industries, with data showing the US manufacturing sector contracted in January for the fourth month in a row.
On Wednesday, Bill Dudley, president of the Federal Reserve Bank of New York, said financial conditions had tightened since the US central bank held its December meeting, and this development would need to be factored in to the March policy decision.
Looking toward Friday’s jobs data, analysts at BNP Paribas said: “Market consensus for today’s employment report has moved lower but, at 190k, remains above our own economics team’s 175k projection. A report in line with our forecasts would still be very consistent with Fed tightening continuing in March or April.”
The yen is 0.1 per cent weaker at Y116.87 per dollar, but is still stronger than before last Friday when the Bank of Japan surprised markets by adopting negative interest rates. The stronger yen helped push Japanese equities benchmarks lower for four consecutive sessions.
Gold, which is typically sensitive to moves in US interest rates, is flat at $1,155.46 per ounce, having risen for the past five sessions.
The decline in the dollar is also likely to be putting pressure on the renminbi. This morning the People’s Bank of China set the reference rate around which its currency is allowed to trade stronger by 0.16 per cent, duplicating Thursday’s move.
These have been the biggest strengthenings since December and break a month of relative calm for the currency fix, which is now being set against a basket of major global currencies, rather than just the dollar.
Additional reporting by Peter Wells in Hong Kong
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