European equities fell, following days of turbulence across global financial markets, as traders waited for monthly US jobs data that may strengthen the case for the first US interest rate rise of the pandemic era.
The regional Stoxx 600 share index edged 0.5 per cent lower in early dealings. This followed a bumpy trading day in the previous session when the European equity gauge dropped 1.3 per cent and Wall Street stock markets whipsawed. London’s FTSE 100 slipped 0.2 per cent on Friday morning.
In Asia, Hong Kong’s Hang Seng index rose 1.8 per cent while futures tracking Wall Street’s S&P 500 share index were steady.
Economists polled by Reuters expect the non-farm payrolls report, published by the labour department later on Friday, to show employers in the world’s largest economy added 400,000 new workers last month.
A separate report from payroll processor ADP on Wednesday showed private payrolls increased by the most in seven months in December.
Investors are likely to scrutinise Friday’s jobs report closely after minutes of the Federal Reserve’s latest meeting revealed officials were considering a faster timetable for interest rate rises this year than investors had anticipated, in order to combat elevated US inflation.
Some Fed officials suggested the US central bank could raise rates even before its goal of maximum employment had been reached, in a revelation that has put heavy pressure on technology stocks this week. The sector, home to a slew of fast-growing groups, has been lifted in recent years by low interest rates, which provide a boost to the present value of companies’ expected future profits.
“Markets are ripe for a correction, or greater, at this point,” said Phillip Toews, chief executive of US asset manager Toews corporation.
“The combination of rising interest rates and inflated asset prices doesn’t usually end well.”
Last year’s double digit gains for global stocks had been fuelled by the Fed and other central banks pushing borrowing costs to record lows as they bought huge quantities of government bonds to shield financial markets from the shocks of coronavirus.
“One of the biggest market themes of 2022 is likely to be how different assets perform as central banks begin paring back their monetary policy support,” said Deutsche Bank strategist Jim Reid, “particularly given inflation is at multiyear highs in a number of countries.”
US bond markets were steady ahead of the jobs data. The yield on the benchmark 10-year US Treasury note was flat at 1.725 per cent, having climbed from about 1.53 per cent at the start of January.
European government bonds continued to react to the Fed’s hawkish tilt earlier in the week, however. Germany’s 10-year Bund yield rose 0.01 percentage points to minus 0.06 per cent and Italy’s equivalent bond yield added 0.04 percentage points to 1.306 per cent.
Foreign exchange markets were steady, with the dollar index, which measures the US currency against six others, inching 0.1 per cent lower.
Brent crude, the oil benchmark, rose 0.3 per cent to $82.24 a barrel.