All eyes are on the release of US jobs figures, with analysts warning that an a reading above expectations could spark another sharp drop on markets
Global equity markets mostly fell Thursday and the pound retreated once more against the dollar on lingering recession fears despite hopes that the US Federal Reserve will tame the pace of aggressive interest rate hikes.
Oil prices advanced, building on gains made before OPEC and other major producers led by Russia decided to slash output by two million barrels per day.
OANDA market analyst Craig Erlam said European markets erased early gains as “investors take a cautious approach” ahead of Friday’s release of a US jobs report that could influence the Fed’s next move.
Wall Street stocks mostly moved lower, with the Dow shedding 0.3 percent.
Stocks had snapped higher at the start of this week as disappointing US economic data fuelled hopes that the Federal Reserve may let up in its campaign of aggressive interest rate hikes to get soaring inflation under control.
“The narrative in recent days of weaker data being positive as it could be a precursor to slower tightening didn’t seem sustainable and it’s already proving to be the case,” added Erlam.
Instead, he said he believed the rally to be a response to the sharp drop in shares in the previous weeks as the Fed made clear it would keep raising rates until inflation is brought down, even if that triggers a recession.
Investors are now looking forward to the release Friday of US non-farm payroll jobs data for the latest glimpse at how the economy is handling rising interest rates.
Data showing tougher labour market conditions could trigger a new relief rally, while a resilient figure could send stocks lower as investors fret about further rate hikes.
Data out Thursday showed first time unemployment claims dropped to 219,000, but that was above expectations.
“The key takeaway from the report is that initial claims — a leading indicator — have a lot more scope for deterioration before the Fed can be convinced that its rate hikes have induced a sufficient softening in the labor market to ease wage-based inflation pressures,” said Patrick O’Hare at Briefing.com.
– Oil prices steady –
Oil prices advanced further after a decision by OPEC+ nations to cut production by two million barrels per day, the biggest reduction in output since the Covid-19 pandemic.
Oil prices, which had slumped to pre-Ukraine war levels in recent weeks as global recession worries mount, had surged in the days ahead of the OPEC+ meeting.
The production cut should support crude prices, but as high oil prices have been stoking the inflation that is prompting central banks to raise interest rates, the move will further exacerbate the situation.
“The oil producing nations want to support the oil market, but a high oil price hurts most nations, so in a roundabout way, the move will probably add to global inflation,” said analyst David Madden at Equiti Capital.
The pound was down about 1.1 percent against the dollar after Fitch ratings agency lowered the outlook for British debt to negative from stable.
This comes after the government of new Prime Minister Liz Truss recently announced a budget packed with debt-fuelled tax cuts.
Ahead of the downgrade Wednesday, sterling had plunged more than two percent after Truss failed to reassure investors with a speech at her Conservative party conference.
The pound, however, has recovered since reaching a record-low close to parity against the dollar at the end of September.
– Key figures around 1530 GMT –
New York – Dow: DOWN 0.3 percent at 30,178.58 points
EURO STOXX 50: DOWN 0.4 percent at 3,433.45
London – FTSE 100: DOWN 0.8 percent at 6,997.27 (close)
Frankfurt – DAX: DOWN 0.4 percent at 12,470.78 (close)
Paris – CAC 40: DOWN 0.8 percent at 5,936.42 (close)
Tokyo – Nikkei 225: UP 0.7 percent at 27,311.30 (close)
Hong Kong – Hang Seng Index: DOWN 0.4 percent at 18,012.15 (close)
Shanghai – Composite: Closed for a holiday
Pound/dollar: DOWN at $1.1184 from $1.1326 on Wednesday
Euro/dollar: DOWN at $0.9828 from $0.9889
Euro/pound: UP at 87.91 pence from 87.29 pence
Dollar/yen: UP at 144.77 yen from 144.59 yen
Brent North Sea crude: UP 0.8 percent at $94.08 per barrel
West Texas Intermediate: UP 0.7 percent at $88.33 per barrel
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