Stock market rally pauses as US jobs data looms

LONDON/SINGAPORE (June 7): Global stocks hovered at a record high on Friday after the European Central Bank cut interest rates for the first time in five years and traders waited on crucial US monthly jobs data for clues about whether the Federal Reserve would soon follow.

MSCI’s world share index was steady after touching an all-time high on Thursday, boosted by a frenzy for artificial intelligence stocks that lifted chipmaker Nvidia’s valuation beyond US$3 trillion (RM14.1 trillion) earlier in the week.

Reaction in government bond markets and the euro to the ECB’s widely expected decision to cut its deposit rate from a record 4% to 3.75% was tepid, although the prospect of easier borrowing conditions for households and businesses has buoyed stocks.

Europe’s broad STOXX 600 share index, which traded flat in early dealings on Friday, has gained 1.4% this week and about 10% year-to-date.

Markets were mostly moving sideways ahead of Friday’s US non-farm payrolls report that could support or derail a dominant market narrative that the jobs market is softening enough for inflation to fall consistently.

Economists expect the world’s largest economy added 185,000 new jobs last a month, a relatively modest gain that traders will likely celebrate after data on Wednesday showed US job openings fell to their lowest in more than three years in April.

“If we see 180,000 or a slight uptick in the unemployment rate, this rally will start again,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

“But if we see a bigger miss or a bigger beat, then the situation would be quite different. The market is trying to see whether the current slowdown in US economic data is Fed- supportive or problematic for earnings.”

Money market pricing implies traders see the Fed cutting rates from their 23-year high of 5.25-5.5% by September, following a slew of similar moves across major economies.

The Bank of Canada on Wednesday became the first G7 nation to trim its key policy rate. Sweden’s Riksbank and the Swiss National Bank have also kicked off their monetary easing cycles, supporting the global risk rally.

“You’ve got two of the G7 cutting rates … it certainly opens the door further to the Fed,” said Tony Sycamore, a market analyst at IG. “We’re not in the home straight, but we’ve certainly rounded the corner.”

The benchmark 10-year US Treasury yield, a benchmark for borrowing rates globally, was firm at 4.29%. The two-year yield, which tracks interest rate expectations, was two basis points (bps) higher at 4.7421%, after declining for six straight sessions until Thursday.

Elsewhere, the dollar languished near an eight-week low against a basket of currencies, and was headed for a weekly loss of more than 0.5%. The euro was flat at US$1.089 following a slight gain in the previous session.

Eurozone bonds were lacklustre on Friday, with Germany’s 10-year Bund yield rising two bps to 2.56%, as investors reacted to a message from ECB president Christine Lagarde on Thursday that further rate cuts were not guaranteed. Bond yields move inversely to prices.

In Asia on Friday, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2% and was on track to end the week nearly 3% higher. Chinese stocks dropped 0.5% after the Wall Street journal reported that Republican lawmakers wanted an import ban on Chinese battery suppliers linked to Ford F and Volkswagen.

Japan’s Nikkei fell 0.26% ahead of the Bank of Japan’s policy meeting next week. Investors expect the BOJ to start reducing its massive government bond purchases in a further move to gradually call time on a long era of aggressive monetary stimulus that has caused the yen to plunge.

The yen steadied at 155.66 per dollar, but is still within sight of late April’s 34-year lows.

Brent crude oil futures were flat at US$79.91 per barrel. Spot gold traded steady at US$2,376.55 an ounce.