Global stocks declined on Friday and the dollar’s sell-off eased as investors awaited the release of a fresh batch of US jobs numbers, with any signs of slowing demand for workers likely to boost hopes that inflationary pressures are waning.
The regional Stoxx Europe 600 index slipped 0.4 per cent in early trading and London’s FTSE 100 fell 0.4 per cent. Contracts tracking Wall Street’s benchmark S&P 500 fell 0.1 per cent while those tracking the tech-heavy Nasdaq 100 dropped 0.2 per cent.
A measure of the dollar against six other major currencies fell 0.2 per cent after tumbling 1.2 per cent on Thursday as traders ramped up their bets that the Federal Reserve will slow its interest rate rises when it meets later this month, potentially easing an aggressive monetary tightening campaign that has sent shockwaves through global markets this year.
“It is now evident that markets have operated a structural shift towards a bearish dollar narrative,” said Francesco Pesole, FX strategist at ING.
The currency has fallen more than 8 per cent since peaking in September to trade at levels last seen in early August, and is likely to weaken further “unless we see a convincingly strong payroll read” later on Friday, Pesole added.
Bureau of Labor Statistics data are expected to show that the pace of US jobs growth slowed again in November. Non-farm payrolls are set to have increased by 200,000 last month, according to a consensus of economists’ forecasts compiled by Bloomberg. This would be a decline from the 261,000 rise recorded in October and the 315,000 increase in September. The unemployment rate is set to remain steady at 3.7 per cent.
A cooling jobs market would strengthen Fed chair Jay Powell’s argument, laid out in a speech on Wednesday, that “the time for moderating the pace of rate increases may come as soon as the December meeting”.
Investors seized on the comments as evidence that the central bank is winning its fight against rampant inflation, after price rises showed signs of easing in October. Inflation stood at 7.7 per cent, down from 8.2 per cent in September.
Trading in futures markets shows investors have assigned a roughly 90 per cent probability to the Fed raising rates by 0.5 percentage points later this month. The central bank has raised borrowing costs by 0.75 percentage points at four consecutive meetings, bringing the federal funds rate to a range of between 3.75 per cent and 4 per cent.
Investors now expect the Fed to raise its main interest rate to a peak of about 4.9 per cent next year, from a forecast of 5 per cent at the start of this week and a high of 5.14 per cent in early November.
Asian stocks declined on Friday, with Japanese markets leading losses as the strengthening yen exerted downward pressure on the country’s equities. Japan’s Topix lost 1.6 per cent. The yen added as much as 1.1 per cent to reach a high of ¥133.76 per dollar and looked set to continue a five-day rally triggered by growing expectations of a so-called Fed pivot, which would reduce the interest rate differential between the two countries.
Hong Kong’s Hang Seng index fell 0.3 per cent and China’s CSI 300 fell 0.6 per cent. Chinese equities had gained over the previous two sessions following signs that Beijing was easing its stringent zero-Covid approach.