A look at the day ahead in European and global markets by Rae Wee
It has been a rollercoaster week and Friday looks set to be no exception for investors, with risky assets taking a beating as Europe wakes up.
All it took was a disappointing ISM report on US manufacturing to make markets worry about the economic outlook and to abandon their optimism about the Federal Reserve’s signals of a rate cut in September.
There are now fears that the Fed is lagging behind in easing rates, and traders have priced in an even greater chance of a 50 basis point rate cut next month, compared to the previous consensus of 25 basis points.
Fresh growth concerns have led to a sharp sell-off in stocks, while safe-haven yen and Swiss franc posted solid gains.
Meanwhile, U.S. Treasury yields fell to their lowest level in months after manufacturing figures raised doubts about whether the world’s largest economy could achieve a long-awaited soft landing.
Ongoing geopolitical concerns also weighed on sentiment.
The Israeli military said Thursday, a day after Hamas’ political leader was killed in Tehran, that the head of the group’s military wing, Mohammed Deif, was killed in an Israeli airstrike in Gaza last month.
Given the limited data agenda in Europe, the focus tonight is on the US non-farm jobs report. If expectations are not met, this will only accelerate the de-risking.
Economists polled by Reuters expect 175,000 jobs were added in July, down from 206,000 the previous month. They will also be watching the unemployment rate, which is expected to remain at 4.1%.
Elsewhere, Japan’s Nikkei was poised for its worst day in more than four years, tracking Wall Street’s decline as a stronger yen looked set to weigh on exporters’ profits.
The outlook is also uncertain as to how far domestic interest rates can rise even with a weaker economy.
The yen’s latest rally, and the Nikkei’s subsequent fall, was triggered by the Bank of Japan’s interest rate hike on Wednesday, part of Governor Kazuo Ueda’s move to reverse the unorthodox, ultra-loose policies of his predecessor.
Key developments that could impact markets on Friday:
– US Nonfarm Employment Report (July)
– Bank of England Chief Economist Huw Pill speaks
– Exxon and Chevron report earnings
(By Rae Wee; Edited by Edmund Klamann)
