August 13, 2022

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European stocks fall, oil recovers, traders await US jobs data

European stocks fall, oil recovers, traders await US jobs data

LONDON (Reuters) – European shares fell slightly on Friday but were still heading for weekly gains, as traders awaited US jobs data due later in the session to give clues about the health of the world’s largest economy.

The MSCI Global Equity Index, which measures stocks in 47 countries, rose 0.2% and is on track for a weekly gain of 0.7% – marking its third consecutive week of gains. (.MIWD00000PUS).

Asian stocks rose overnight but at 0823 GMT the STOXX 600 was down 0.1%. (.stoxx)French CAC 40 (.fchi) The German DAX (.GDAXI) It was flat. London’s FTSE 100 is down 0.2%. (.FTSE).

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Central banks around the world have been raising interest rates in an effort to curb rising inflation, but European stocks have recovered to nearly two-month highs this week.

“Stock futures have become comfortable with the idea that interest rate increases implemented by central banks will be enough to contain inflation in the long run,” said Kiran Ganesh, multi-asset strategist at UBS.

But other asset classes reflect a slowdown.

The closely watched portion of the US Treasury yield curve that measures the gap between yields on two- and 10-year Treasuries reached 39.2 basis points Thursday, the deepest reversal since 2000.

An inverted yield curve is often seen as an indicator of recession in the future.

Oil rebounded after the previous session saw prices reach their lowest levels since February. Concerns about supply shortages were enough to cancel out fears of weakening fuel demand. Read more

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Global crude oil markets have been lagging flat, with spot prices higher than in the coming months, indicating tight supplies.

Investors will look to the US jobs data to see if the Fed’s strong pace of interest rate hikes is starting to slow economic growth.

Data is expected to show that nonfarm payrolls increased by 250,000 jobs last month, after rising by 372k in June.

“So far, markets have been responding to stronger economic data as good news,” ING economists wrote in a note to clients. “But at some point, they may be wondering if Fed tightening will have the desired effect if the economy remains strong.”

“At that point, they could start to worry about prices going up, or staying higher for a longer time.”

UBS’s Ganesh said the nonfarm payroll figure in the 200,000-300,000 range would be consistent with a “soft landing” for the economy, while higher numbers suggest the Fed needs to raise rates further to contain demand.

Thursday’s data showed that the number of Americans filing new applications for unemployment benefits rose last week, suggesting that labor market weakness may already be in place. Read more

Loretta Meester, president of the Federal Reserve Bank of Cleveland, issued a hawkish tone Thursday, saying the Fed should raise interest rates above 4% to bring inflation back to target. Read more

The US dollar index rose 0.2% and the euro fell 0.2% to $1.02265. The Australian dollar, which is seen as a liquid proxy for risk appetite, fell 0.1% to $0.6958. Read more

The British pound fell 0.1% to $1.215.

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The Bank of England on Thursday raised interest rates by the most in 27 years and warned that a prolonged recession was imminent. Read more

European government bond yields mostly rose 1 to 2 basis points, with the German benchmark 10-year yield at 0.812%.

Official data showed that German industrial production posted an unexpected but modest increase in June.

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(Elizabeth Hawcroft reports). Editing by Bradley Perrett

Our criteria: Thomson Reuters Trust Principles.