A look at the future of European and global markets according to Ankur Banerjee
Markets hit the pause button after a sell-off in stocks since the start of the week, but sentiment remained fragile as concerns about the outlook for the US economy resurfaced and investors turned their focus squarely to this week’s jobs reports.
Wednesday’s jobs data suggested the US labour market was losing steam, raising expectations that the Federal Reserve could resort to big interest rate cuts, while additional reports, including Friday’s non-farm payrolls data, kept sentiment on edge.
Futures indicated European stocks were set for a subdued open after Asian shares rose 0.4% on Thursday, recouping some of the week’s losses, although MSCI’s broadest index of Asia-Pacific shares outside Japan is still down 2.2% so far this week.
Risk sentiment remained fragile, with the yen holding on to its gains for the week as traders seek safe haven assets while the dollar held steady in Asian hours after overnight weakness.
The Bank of Japan’s hawkish rhetoric also supported the yen after BOJ board member Hajime Takata hinted that the central bank should stay on course to raise interest rates.
While this week’s focus will be on Friday’s US non-farm payrolls report, Thursday’s US jobless claims reading and Eurozone retail sales data will keep investors busy.
Markets are eager to know whether the data will indicate the Fed will cut interest rates by 25 basis points (bps) or 50 bps when it meets later this month. Traders raised bets on a 50 bps cut following the jobs data and are now pricing in a 44% probability, up from 38% the day before.
Investors are also pricing in 110 basis points of rate cuts at the three remaining Fed meetings this year, and when you factor in the Fed’s focus on the labor market, it looks like economic data in the coming weeks will be scrutinized by increasingly nervous investors.
Key events that could influence markets on Thursday:
Economic Events: August Eurozone Retail Sales; August Construction PMI data for Germany, France and the Eurozone
(By Ankur Banerjee; edited by Edmund Klamann)