European stocks slip, oil recovers, traders await US jobs data

European stocks slip, oil recovers, traders await US jobs data

LONDON, Aug 5 (Reuters) – European equities slightly on Friday but were still set for a weekly gain, while traders waited for US jobs data due later in the session to give clues as to the health of the world’s largest economy.

The MSCI world equity index, which tracks shares in 47 countries, was up 0.2% and on track for a weekly gain of 0.7% – marking its third consecutive week of gains (.MIWD00000PUS).

Asian shares rose overnight but at 0823 GMT the STOXX 600 was down 0.1% (.STOXX), France’s CAC 40 (.FCHI) and Germany’s DAX (.GDAXI) were flat. London’s FTSE 100 was down 0.2% (.FTSE).

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Central banks around the world have been raising interest rates in an attempt to limit surging inflation, but European stocks have recovered to near two-month highs this week.

“Equity futures have grown comfortable with the idea that interest rate hikes that the central banks are putting through will be sufficient to contain inflation in the longer term,” said Kiran Ganesh, multi-asset strategist at UBS.

But other asset classes are reflecting the slowdown.

The closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes reached 39.2 basis points on Thursday, the deepest inversion since 2000.

An inverted yield curve is often seen as an indicator of a future recession.

Oil rose, recovering after the previous session saw prices hit their lowest levels since February. Concerns about supply shortages were enough to cancel out fears of weakening fuel demand. read more

Global crude oil markets remained firmly ination, where prompt prices higher than those in future months, indicating tight backward supplies.

Investors will look to US jobs data to see if the US Federal Reserve’s aggressive pace of rate hikes is starting to cause economic growth to slow.

The data is expected to show that nonfarm payrolls had increased by 250,000 jobs last month, after rising by 372,000 in June.

“Until now, markets have been responding to stronger economic data as good news. But at some point, they will maybe question whether the Fed’s tightening is having the desired effect if the economy remains strong,” wrote ING economists in a note to clients.

“At that stage, they could start to fret that rates may rise higher, or stay higher for longer.”

UBS’s Ganesh said that a nonfarm payrolls figure in the range of 200,000 to 300,000 would be consistent with a “soft landing” for the economy, while a higher figure would suggest that the Fed needed to raise interest rates more to contain demand.

Date on Thursday showed that the number of Americans filing new claims for unemployment benefits had increased last week, suggesting that a weakening in the labor market might already be underway. read more

Cleveland Fed President Loretta Mester struck a hawkish tone on Thursday, saying that the Fed should raise interest rates to above 4% to bring inflation back down to target. read more

The US dollar index was up around 0.2% and the euro was down 0.2% at $1.02265. The Australian dollar, which is seen as a liquid proxy for risk appetite, was down 0.1% to $0.6958. read more

The British pound was down 0.1% to $1,215.

The Bank of England raised interest rates by the most in 27 years on Thursday and warned that a long recession was coming. read more

European government bond yields were mostly 1 to 2 basis points higher, with the benchmark German 10-year yield at 0.812% .

German industrial production posted an unexpected but modest increase in June, official data shown.

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Reporting by Elizabeth Howcroft; Editing by Bradley Perrett

Our Standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money driving “Web3”.

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