Global stocks head for best week since May; US jobs data shifts rate outlook
Market Performance and Economic Data Overview
By Nell Mackenzie and Amanda Cooper
LONDON, July 3 (Reuters) - Global stocks headed towards their best weekly performance in two months on Friday after a lukewarm U.S. jobs report dampened expectations for an imminent rate hike from the Federal Reserve, which restrained the dollar and gave gold a boost.
European and Global Stock Markets
In Europe, the STOXX 600 hit another record high and was last trading up 0.6% as it headed for a weekly gain of 2.6%, its best since mid-May.
MSCI's broadest index of world shares rose 0.4%, set for a gain of 2% this week, the most in two months.
European Indices and Market Sentiment
"Yet again, the tech-lite European indices are back in demand, even more so given that the stocks within them trade on much lower price-to-earnings than those typically seen over in the U.S. So, not only are Europe’s indices less exposed to the AI trade, but they are also relatively cheap," said David Morrison, senior market strategist at Trade Nation.
Sector Rotation and AI-linked Stocks
Semiconductor stocks and other AI-linked companies fell on Wall Street on Wednesday and Thursday, as investors favoured financials and healthcare shares, among others.
Asian Markets and Economic Activity
By Friday, chip stocks rebounded in Asia, pushing up South Korea's volatile KOSPI by around 6% and Tokyo's Nikkei by 1.5%. Purchasing Managers' Index data released on Friday indicated increased activity across major Asian economies.
Japan and China Service Sector Trends
Japan's services sector returned to expansion in June after stalling the previous month. China's services activity expanded at a slightly slower pace, but overseas demand rose at the fastest rate in 20 months.
Analyst Commentary on Asian PMIs
"The PMIs remain healthy by recent standards and still imply stronger economic momentum across Q2 as a whole," analysts from Capital Economics said of the Chinese data.
US Labour Market and Rate Outlook
US Labour Market Cooling
U.S. job growth slowed sharply in June and payroll gains for the prior two months were revised lower, according to data released on Thursday, pointing to a cooling labour market.
The tepid jobs data doused traders' expectations of an imminent rate hike and raised the chances that the Fed will keep rates on hold until October.
Federal Reserve Rate Expectations
Fed funds futures are pricing an implied 46.8% probability that the U.S. central bank will keep rates steady at its September 15 to 16 meeting, compared to a 35.8% chance a day earlier, according to the CME Group's FedWatch tool.
Gold and Inflation Concerns
This helped lift the gold price by 1% to above $4,160 an ounce as it headed towards its first weekly gain since the end of May, up 1.8%.
Yet inflation remained a concern.
Shipping Disruptions and Inflation Risks
"Our biggest anticipated risk this year, even before the Iran war, was shipping," said James Rossiter, head of global economics at TD Securities.
"Ships have been rerouted all over the world because of the Hormuz Strait closure, leading to less shipping capacity globally," he said, suggesting the price effects of this were still working their way through the global economy.
Currency and Commodity Markets
US Dollar and Major Currencies
U.S. futures rose, reflecting the upbeat tone elsewhere. S&P 500 and Nasdaq futures were up 0.3% and 1.2% respectively. The U.S. market is closed on Friday for Independence Day.
The dollar, which has risen to its highest level in over a year against a basket of major currencies this week, took a breather on Friday. The euro was up 0.1% at $1.144, while the pound was steady at $1.335.
Japanese Yen and Market Intervention
Against the yen, which hit its weakest in 40 years this week, the dollar was steady around 161. The few traders around on Friday remained on high alert for signs of official buying from authorities in Tokyo, who may have adopted a new approach to their forays into the market, according to a Reuters exclusive on Thursday.
Commodities Update
In commodities, Brent crude oil futures rose 0.45% to $71.12.
(Reporting by Nell Mackenzie and Gregor Stuart Hunter; Editing by Thomas Derpinghaus, Jan Harvey, Rod Nickel)
