Stocks Slip, Eye Weekly Gain Ahead of Key U.S. Jobs Data

By Tommy Wilkes

LONDON (Reuters) – European shares slipped on Friday but held most of the previous session’s gains as investors welcomed the U.S. Senate’s temporary lifting of the debt ceiling and awaited crucial jobs data due later in the session.

The rally on Thursday has lifted global stock indexes into positive territory for the week, despite widespread selling initially as investors fretted about soaring energy prices and the prospects of faster than expected interest rate rises to combat inflation.

Still, the mood remains nervous — oil prices rallied again back towards multi-year highs and government bond yields climbed in early Friday trading.

By 0820 GMT, the Euro STOXX 50 was 0.23% weaker, while the German DAX dropped by a similar amount. Britain’s FTSE 100 rose 0.1%.

The MSCI world equity index, which tracks shares in 50 countries, was unchanged on the day and is now up 0.8% for the week. The index is 4.4% off its record high reached in early September.

Wall Street futures pointed to a small fall at the open.

Jim Reid, strategist at Deutsche Bank, said that “markets have been stirred but not completely shaken this week”.

He said the rebound had been “thanks to the near-term resolution on the U.S. debt ceiling alongside subsiding gas prices, which took the sting out of two of the most prominent risks for investors over the last couple of weeks.”

In Asia, the main share benchmark was supported by advances in Chinese blue chips which rose 1.07% as trading resumed after the week-long National Day holiday. The improved sentiment partly stemmed from a private-sector survey that showed China’s services sector activity returned to growth in September.

Over the past three months, Chinese shares have been battered by regulatory clampdowns, turmoil in the property sector related to China Evergrande and its vast debt, and more recently power shortages, but some investors are now starting to see a buying opportunity.

However, bonds and shares issued by Chinese property firms slumped on Friday with no sign in sight of a resolution to cash-strapped Evergrande’s debt problems which is affecting sentiment in the broader sector.

Supporting risk sentiment was the U.S. Senate’s approval of legislation to temporarily raise the federal government’s debt limit and avoid the risk of a historic default, though it put off until early December a decision on a longer-lasting remedy.

The vote sparked a sell off in U.S. government bonds, and 10-year U.S. Treasury yields rose to as high as 1.6%, their highest since mid June when they touched the same level.

Traders are also awaiting U.S. payroll data for September. They expect employment figures that are near consensus will lead the Federal Reserve to indicate at its November meeting when it will begin tapering its massive stimulus program.

According to a Reuters survey of economists, nonfarm payrolls likely surged by 500,000 jobs last month, which would leave the level of employment about 4.8 million jobs below its peak in February 2020.

CBA analysts said it was possible the job data could surprise on the downside, but “we think it would take a larger miss than we are anticipating to stop the [Federal Reserve] from announcing a taper in November.”

They said a strong payrolls print would support the U.S. dollar because it would signal an imminent taper.

The U.S. dollar index rose marginally to 94.291 not too far from a 12-month high of 94.504 hit in late September.

Oil prices gained on signs some industries have begun switching from high-priced gas to oil and on doubts the U.S. government would release oil from its strategic reserves for now.

Brent crude rose 1.4% to $83.09 a barrel, heading back towards a three-year high of $83.47 touched earlier in the week, while U.S. crude gained 1.46% to $79.45 a barrel approaching its seven-year high of $79.78 also hit this week. [O/R]

(Additional reporting by Alun John in Hong Kong; Editing by Kim Coghill)