Stocks Fall as Traders Take Cover Before Payrolls: Markets Wrap

(Bloomberg) – Global stock markets fell on Friday as traders remained cautious ahead of a U.S. jobs report that provides new insight into the health of the economy and the outlook for interest rates.

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Nasdaq 100 futures fell 0.3% and S&P 500 futures fell 0.2%. Chinese benchmarks were pushed towards a bear market. Europe’s Stoxx 600 remained largely unchanged.

A similar sense of caution was seen in the bond market. British government bonds extended their decline this week, with the 10-year bond yield rising a further 3 basis points to 4.84% as bonds fell across Europe. U.S. Treasuries were stuck.

Financial markets have been volatile at the start of the year, with U.S. yields trending higher as investors soften their views on the pace of Federal Reserve easing. The concerns come as a sign that a strong U.S. economy and persistent inflation could keep interest rates high.

Friday’s U.S. nonfarm jobs report is expected to show a slowdown in hiring in a robust labor market. The median estimate of this number predicts that 165,000 jobs will be added to the economy in December. The unemployment rate is expected to remain stable at 4.2%, and growth in average hourly wages is expected to slow slightly from last month.

“Given how the Fed’s hawkishness has gained momentum in recent weeks and how many investors are getting excited about dovish signals,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The market reaction to weak numbers could outweigh the reaction to strong numbers.”

Several Fed officials acknowledged Thursday that the central bank is likely to keep interest rates at current levels for an extended period of time and only lower them again if inflation cools significantly.

“The Fed is concerned about the incoming administration,” Schuyler Weinand, chief investment officer at Regan Capital, said on Bloomberg TV. The combination of widening U.S. budget deficits and strong consumer sentiment could result in “interest rates rising for the next five to 10 years,” he said.

The dollar index was little changed. The yen rose 0.2% against the dollar after reports that Bank of Japan officials may discuss raising their inflation outlook. Sterling remained under pressure, falling 0.2% after falling to its lowest in more than a year in the previous session.

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