Stocks Show Signs of Steadying Ahead of Jobs Report

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12/07/2018 | 10:03 am

By Riva Gold

Global stocks showed signs of stabilizing near the end of a rocky week as investors looked to the U.S. jobs report to provide a fresh signal on the course of U.S. interest rates.

The Stoxx Europe 600 was up 1.1% in early trading Friday from a two-year low, following its biggest daily loss since late June 2016, around the time of the Brexit vote. Markets in Asia were mostly muted, while futures markets pointed to small declines on Wall Street.

The moves came after stocks around the world fell sharply Thursday when the arrest of a top Chinese tech executive and a steep drop in oil prices added to an already volatile trading environment.

U.S. stocks managed to pare most of their declines after European and Asian markets closed Thursday, however, after The Wall Street Journal reported Federal Reserve officials are considering whether to signal a new wait-and-see mentality at their meeting in December that could slow the pace of rate increases next year.

The prospect of tighter U.S. monetary policy had contributed to wild gyrations in markets this year amid worries that higher borrowing costs could hurt the economy at a time when global growth is already showing signs of slowing.

Investors have now dialed down expectations for a December U.S. interest-rate increase, with markets currently pricing a 73% probability, down from 83% a week ago, according to CME Group. Expectations for a second rate rise in March meanwhile have fallen to 30%, from 51.5% a month ago.

The late recovery in U.S. stocks on Thursday helped European stocks recover in early trading Friday, with the technology sector leading gains.

In Asian trading, stocks mostly either recovered or stabilized after very steep drops on Thursday. Japan's Nikkei rose 0.8%, while the Shanghai Composite was flat and Hong Kong's Hang Seng edged down 0.4%.

Later in the day, the November jobs report is expected to help set the tone for markets. The report is expected to carry particular weight in light of the Fed's emphasis on data-dependence, and investors expect the pace of wage growth and strength of the labor market to be key factors in determining U.S. interest rates.

While the labor market has largely been considered a bright spot this year, the four-week moving average of jobless claims rose last week by 4,250 to 228,000--raising modest concern after touching a 49-year low in September.

"The pickup in jobless claims, to me that's more important than smaller gyrations in the [yield] curve," said Holly MacDonald, chief investment strategist at Bessemer Trust. "We think the labor market is still in pretty good shape, but that's been a pretty good indicator of the economy turning," she said.

Meanwhile, a range of other concerns have driven sharp swings in markets this week, and are expected to continue to amplify investor jitters: Parts of the yield curve, or gap between long and short-dated U.S. Treasurys, turned negative this week, fueling fresh worries about the health of the U.S. economy.

Separately, Trump administration officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs, reigniting worries about global trade.

In this environment, the Dow tumbled as much as 785 points Thursday before recovering almost all of those losses in the final hour of the session. Most major indexes in the U.S., Europe and Asia were still on track for sharp weekly declines, even with the recent bounce.

"The extreme nature of some of these moves on a day-to-day basis is somewhat unsettling," said Ms. MacDonald. "It's making people a bit more anxious, but we're trying to keep the conversation on long-term drivers and get through this."

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