European equities edged higher ahead of a US jobs data release that investors expected would underscore the recovery of the world’s largest economy from the coronavirus pandemic but would not persuade the Federal Reserve to tighten monetary policy.
The Stoxx 600 index rose 0.4 per cent in early dealings to regain its all-time high reached in mid-April. The FTSE 100 in London added 0.3 per cent.
Analysts expect the US non-farm payrolls report to be published later on Friday to show that 1m or more jobs were created in April, which would be the strongest gain in employment since August.
However, Atlanta Fed president Raphael Bostic said on Thursday that such a reading would not persuade the central bank to reduce its $120bn in monthly bond purchases begun last March to support financial markets through the coronavirus crisis.
“We are not out of the woods . . . I am going to keep my head down,” Bostic said in comments reported by Reuters.
Wall Street stocks, which rallied after Bostic’s comments, had drifted for much of the week as investors turned cautious ahead of the jobs data.
US Treasury bonds, which investors rushed to sell in the first quarter of this year in anticipation of the Fed tapering its asset purchases, also steadied. The yield on the 10-year Treasury, which climbed from 0.9 per cent at the start of the year to almost 1.8 per cent in late March, was steady on Friday at 1.57 per cent. Yields move inversely to the price of bonds.
“Markets are pricing a Goldilocks scenario,” said Kevin Thozet, portfolio adviser at fund manager Carmignac, referring to conditions in which the US economy recovered without overheating to the point where the Fed would be forced to tighten financial conditions to slow inflation. “What we don’t know is what could derail it.”
Fed chair Jay Powell has said consistently that the central bank would not withdraw financial support for the economy until there had been “substantial” progress on employment.
“That message was not being received until a couple of months ago and markets are now following the Fed’s lead,” said Tatjana Greil Castro, co-head of public markets at credit investment group Muzinich.
If the April jobs number beat economists’ forecasts significantly, she added, US bond yields would likely “go higher until the Fed comes back and repeats its message”.
The dollar, measured against a basket of trading partners’ currencies, drifted 0.1 per cent lower on Friday morning. Brent crude futures rose 0.3 per cent to $68.29 a barrel.
Asian stock markets were mixed. China’s CSI 300 fell 1.3 per cent, rattled by trade tensions with the US and a worsening pandemic situation in the region.
“Covid-19 cases are growing again in Asia. Not only in India, but also in Japan, South Korea, Vietnam and a few new cases have also been seen in Singapore and Taiwan,” said ING greater China economist Iris Pang.
Hong Kong’s Hang Seng index lost 0.2 per cent and Japan’s Topix rose 0.3 per cent.