Stocks and bonds drift ahead of US employment report

European equities updates

European stocks and global government bonds were in a holding pattern on Thursday as investors awaited US jobs data that may influence the path of central bank support for the economy and financial markets.

The Stoxx 600, which is trading close to its all-time high, added 0.1 in early dealings. London’s FTSE 100 was flat and futures markets signalled Wall Street’s S&P 500 and Nasdaq Composite would also drift in early New York dealings.

The yield on the 10-year US Treasury bond, which moves inversely to its price and is sensitive to perceived changes in the future path of interest rates and monetary policy, was steady at 1.299 per cent. Germany’s equivalent Bund yield was also flat at minus 0.376 per cent.

Economists polled by Bloomberg expect that Friday’s non-farm payrolls report, a monthly data release that traders all over the world scrutinise for clues about the health of the world’s largest economy, will show US employers added 750,000 jobs in August.

The Federal Reserve, which has bought $120bn of bonds each month throughout the pandemic to boost economic activity, has pledged to reduce emergency stimulus once “maximum” employment has been reached.

A higher than expected number is “something that markets would be comfortable with,” said Invesco multi-asset fund manager Sebastian Mackay, as traders balanced expectations of a reduction of Fed stimulus spending with the idea that the US economy was recovering strongly from last year’s coronavirus-induced shocks.

A lower number that implied a worker shortage in the US was worsening, Mackay added, would spark fears of consumer price inflation rising after it steadied at a 13-year high last month. This could shift market expectations on future interest rate rises, he said. “So you could see bond yields higher and equities struggling.”

In Asia, stock markets were mostly subdued on Thursday. Tokyo’s Topix and Hong Kong’s Hang Seng index were both ahead 0.1 per cent, although the Hang Seng sub-index of Chinese technology shares outperformed, rising 1 per cent. Wall Street’s technology-focused Nasdaq Composite has also outperformed the broader-based S&P 500 over the past two weeks.

Patrick Spencer, vice-chair of equities at RW Baird, said investors were topping up their holdings of large tech companies to insulate their portfolios against a potential economic slowdown caused by the intensifying spread of the Delta variant of Covid-19 in the US as well as Asia. One in five US states reported record high levels of Covid-19 hospitalisations during August.

“When you have fears about growth, tech stocks usually show up as a means of defence,” Spencer said, particularly after these stay-at-home businesses thrived through last year’s lockdowns.

Currency markets were also quiet on Thursday ahead of the payrolls data. The dollar index, which measures the US currency against six others, traded flat, having weakened over the past couple of sessions. The euro was steady against the dollar at $1.1844. Sterling was also unchanged at $1.3779.

Brent crude, the international oil benchmark, was flat at $71.58 a barrel after Opec and its allies agreed on Wednesday to pump an extra 400,000 barrels a day each in September

“Opec+ went ahead with its planned supply hike . . . as demand is seen to be improving. However, we expect the group to remain vigilant at each upcoming meeting amid demand uncertainty,” said analysts at Citi.

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