European equities and US stock futures turned lower on Friday ahead of a US jobs report that will offer fresh clues about the health of the world’s largest economy.
The regional Stoxx 600 share index, which has made gains in July after three consecutive months of losses, dipped 0.1 per cent in early trades. London’s FTSE 100 shed 0.3 per cent.
Futures trading signalled Wall Street’s S&P 500 equities benchmark, which closed 1.5 per cent higher on Thursday, would lose 0.3 per cent at the opening bell in New York.
Economists polled by Reuters predicted the monthly US non-farm payrolls report — which investors watch closely because of its potential to influence central bank policies — will show that the country added 268,000 jobs last month.
Traders will focus on whether the unemployment rate has remained near pre-coronavirus pandemic lows and how fast wages are rising, however, as they look for signs that inflationary trends in the jobs market are easing enough for the Federal Reserve to scale back plans for aggressive interest rate rises.
“If you get falling unemployment and the [workforce] participation rate also going down,” said Brian Nick, chief investment strategist at Nuveen, “you get that overheating mix that gives the Fed the green light to keep going and that would be an unambiguous negative for the markets.”
But a slightly lower than expected hiring number, Nick added, might be a “sweet spot,” for investors, firming a recent market narrative of slowing economic growth that might reduce inflation and dissuade the Fed from rapidly tightening monetary conditions.
With US inflation running at 40-year highs, the Fed raised its main interest rate by an extra large 0.75 percentage points in June and has signalled it may do so again this month.
US government bond markets on Friday continued to flash warning signs about an economic slowdown. The yield on the two-year Treasury bond traded at 3.02 per cent, while the 10-year Treasury yield stood at about 2.99 per cent.
Bond yields, which move in the opposite direction to their prices, are usually higher on longer-dated debt instruments, compensating investors for lending their money out for longer periods. An inverted yield curve, however, suggests traders believe interest rates will rise rapidly in the near term and cause an economic slowdown that prompts central banks to reduce borrowing costs in later years.
Elsewhere, the euro was steady at $1.016, close to a 20-year low against the dollar as recession jitters drove demand for the US currency.
The pound slipped 0.2 per cent to just under $1.20, after a brief pop on Thursday in response to embattled UK prime minister Boris Johnson announcing his resignation.
Brent crude oil edged 0.1 per cent lower to $104.54 a barrel.
