European stock futures dipped on Friday, following losses in Asian equities. The market is on edge as US jobs data, due later today, will influence expectations for interest rates.
Euro Stoxx 50 futures dropped by 0.1%, while S&P 500 futures declined by 0.3%. This followed a national day of mourning in the US on Thursday for former President Jimmy Carter, which led to a closed US stock market. Meanwhile, the MSCI Asia benchmark fell for the third consecutive session, with shares across most Asian markets retreating.
Treasury Yields and Chinese Bond Market Response
In Asia, Treasury yields remained stable after a significant jump earlier this week. The 30-year yield reached its highest point since 2023. Meanwhile, Chinese yields increased after the People’s Bank of China announced it would temporarily stop buying government bonds. This surprising move followed a record low in the benchmark yield. The offshore yuan slightly strengthened against the dollar.
Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, commented, “This should help stabilize Chinese bond yields and support the yuan by narrowing the yield gap with the US.” However, he warned that if US yields continue to rise, the pressure on the yuan will persist.
Volatility in Global Financial Markets
Global financial markets have been volatile since the start of the year, driven by rising Treasury yields. Investors are adjusting their expectations for the Federal Reserve’s actions, particularly after the central bank’s cautious stance on easing. This has contributed to market uncertainty in Asia, where China’s economic slowdown has already dampened investor sentiment. The MSCI China Index is nearing a bear market.
Several Federal Reserve officials confirmed on Thursday that interest rates are likely to remain high for an extended period. Rate cuts will only happen when inflation shows significant signs of cooling.
Skyler Weinand, Chief Investment Officer at Regan Capital, explained on Bloomberg Television, “The Fed is concerned about the incoming administration. With a growing US fiscal deficit and strong consumer spending, we could face higher interest rates for the next five to ten years.”
Dollar Strengthens, Yen Weakens
The US dollar index extended its three-day advance, showing a slight increase. The yen slipped by 0.1% against the greenback. Traders are closely watching for signs that Japan might intervene to support the yen, with the upcoming US jobs report seen as a potential trigger for significant currency movements.
Corporate News: Bloks Group’s Strong Debut
In corporate news, shares of Chinese toymaker Bloks Group Ltd. surged 82% on their Hong Kong trading debut, marking a strong start for the company.
US Jobs Report: Key Data for Market Sentiment
The US nonfarm payrolls report, due later today, is expected to show a slowdown in hiring, despite a generally strong labor market. Analysts forecast that 165,000 jobs were added in December, with the unemployment rate holding steady at 4.2%. Average hourly earnings growth is also expected to slow slightly from the previous month.
Strategists Ian Lyngen and Vail Hartman at BMO Capital Markets suggested that the jobs data will serve as a key test for the market’s current expectations about the Federal Reserve’s stance. They noted that Treasury market movements suggest a more balanced outlook, with a stronger response expected if the jobs report disappoints.
UK Pound Under Pressure, Oil Prices Rise
The British pound remains under pressure after hitting a one-year low in the previous session, as concerns about the UK Labour government’s ability to control the deficit weigh on market sentiment. UK government bond yields, or gilts, have fallen amid fears over rising borrowing costs.
In the commodities market, oil prices are on track for a third consecutive weekly gain, driven by tightening supply, including a reduction in US stockpiles. This has helped offset concerns about weakening demand from China.
Related topics:
