World stocks eased back from record highs and fell for the first time in eight days, as jitters about Catalonia’s independence push returned while bets on higher U.S. interest rates sent the dollar to its highest since mid August; S&P 500 futures were modestly in the red – as they have been every day this week before levitating to record highs – ahead of hurricane-distorted nonfarm payrolls data (full preview here). U.S. jobs report will also be released Friday with a speech on monetary policy by the New York Fed chief.
On Thursday the S&P 500 reached its latest all-time high after better-than-forecast American factory orders and hawkish comments by SF Fed President John Williams reinforced optimism in the world’s largest economy, and pushed the dollar higher.Oil fell and the gold price edged higher. The VIX declined to a new record low going back to 1990.
“Uncertainty about whether Catalonian parliament will meet on Monday persists,” Commerzbank strategists said in a note.
Friday’s other focus for markets will be U.S. jobs data due out at 830am ET. Wall Street consensus is for a 90,000 print down from 156,000 new jobs in August. The number however will be largely distorted by hurricanes, resulting in a drop in jobs offset by a rise in wages. The number will be largely meaningless, because as Bloomberg’s David Finnery writes, “any weakness will be attributed to hurricanes, while a beat on payrolls or wages would be seen as supporting a Federal Reserve interest rate increase in December.”
As Deutsche Bank writes overnight, it’s fair to say that inflation is a more important variable
than employment at the moment for central banks. An in-line ADP print
(135k) earlier in the week and decent employment component readings out
of the ISM’s makes it feel like the whisper number is slightly above the
market consensus for today of 80k (vs. 156k in August). DB economists expect a 50k reading, noting that the
initially reported September 2005 employment report, which followed
Hurricane Katrina, showed a -35k decline in nonfarm payrolls after
averaging 174k over the three months ending in August 2005. It’s worth
noting that the highest and lowest economist forecasts on Bloomberg for
today are 260k and -45k – so the street collectively appears pretty
confused. In these high intensity wage/inflation watching times, the
average hourly earnings will be key.
Since U.S. data this week has been solid on the whole, it has been one of the reasons for the dollar’s strength by also feeding bets that the Federal Reserve will raise U.S. interest rates for a third time this year in December. According to Reuters, interest rate futures traders are now pricing in an 86 percent likelihood of a December rate hike, up from 78 percent a week ago, according to the CME Group’s FedWatch Tool. Aberdeen Standard Investments Senior Investment Manager James Athey said the question now was what happens next year. Not only is inflation still subdued but the Fed could well get a new head.
“Investors need a lot of convincing about how far this Fed will hike without some decent wage growth and inflation,” he said. “In any case, the Fed’s thinking is going to be extremely hard to predict over the coming months as so many members change.”
Ahead of the payrolls report, Asian stocks rose, set to cap their best week since July, after U.S. economic reports and Fed speaker comments bolstered optimism on the global economy. The MSCI Asia Pacific Index climbed 0.2% to 163.17, its highest close in two weeks.With China’s holiday week coming to an end, and maindland market still closed, the Hang Seng Index posted its biggest weekly increase since mid-July and closed at its highest since December 2007 as Geely Automobile Holdings – the year’s top performer – helped offset loses by Macau casino operators. The Hang Seng Index rose 0.3% to 28,458.04 after earlier advancing as much as 0.9%; the index rose 3.3% on the week. Hang Seng China Enterprises Index adds 0.5% for weekly gain of 5%.Japan’s Topix index rose, completing its fourth weekly gain, as banks and insurance shares climbed. Australian shares advanced, halting a three-day slide, as BHP Billiton Ltd. and Rio Tinto Ltd. led a rally of metals producers.
European equities traded marginally flat, with underperformance evident in the IBEX: Spanish stocks and bond prices, which surged on Thursday, were sent tumbling back again as a Catalonian official said the region’s parliament would meet on Monday in defiance of a ruling by Spain’s constitutional court. Spain’s defiance also sent the euro scuttling back below $1.17 again and gave the dollar another leg up as it headed for a fourth consecutive week of gains a move that is also starting to apply pressure to currency-sensitive emerging markets. The higher than expected German Industry Orders paved no immediate bearish pressure in German Bunds, despite opening marginally weaker, led by the US following hawkish Fed commentary yesterday.
The Bloomberg Dollar Spot Index extended its gains, rising to an 11 week high as it moved above yearly trendline resistance before U.S. payrolls, while Treasuries were pressured after London stepped in. The Yen is set to post its fourth straight weekly loss against the dollar, which will make the longest streak since early July. The loonie hit a five-week low ahead of Canadian labor data, while the pound headed for its biggest weekly decline versus the dollar since last October’s ‘flash crash’ as doubts on Theresa May’s future as U.K. Prime Minister grew, with many of her own party members demanding she quit. Sterling was set for its steepest weekly drop against the euro since July. It could slip even further given the chaos within the Conservative party and less-than-encouraging U.K. economic data, analysts said. This is a swift turn in fortunes for the pound.
In rates, the yield on 10-year Treasuries advanced two basis points to 2.36 percent, the highest in more than 12 weeks. Germany’s 10-year yield rose three basis points. Britain’s 10-year yield was unchanged at 1.387 percent, the highest in eight month.
In commodities Brent crude was down 0.1 percent at $56.94 a barrel. The futures contract had jumped 2.1 percent overnight on signs Saudi Arabia and Russia would limit production through next year, although caution towards a tropical storm heading for the Gulf of Mexico cut short the advance. Gold gained 0.1 percent to $1,269.48 an ounce. Copper advanced 0.1 percent to $3.05 a pound, the highest in more than three weeks.
Aside from US nonfarm payrolls, looking ahead highlights include the Canadian jobs reports, BoE’s Haldane, Fed’s Bostic, Dudley and Kaplan.
