A look at the day ahead at Ankur Banerjee’s European and global markets
Markets hit the pause button after a sell-off in stocks since the start of the week, but sentiment remained fragile as concerns about the outlook for the US economy resurfaced and investors focused squarely on this week’s jobs reports.
Labor data on Wednesday indicated the U.S. labor market is losing strength, raising expectations that the Federal Reserve will resort to major interest rate cuts, while additional reports including Friday’s nonfarm payrolls data keep sentiment on edge.
Futures indicated European stocks were heading for a subdued open after Asian shares rose 0.4% on Thursday, recouping some of the week’s losses, although MSCI’s broadest index of Asia-Pacific shares outside Japan is still down 2.2% so far this week.
Risk sentiment remained fragile, with the yen holding on to its gains for the week as traders looked for safe assets, while the dollar remained steady in Asian hours after overnight weakness.
The Bank of Japan’s aggressive rhetoric also supported the yen after BoJ board member Hajime Takata hinted that the central bank should stay on course to raise rates.
While the spotlight this week will be on Friday’s U.S. nonfarm payrolls report, Thursday’s U.S. unemployment numbers and Eurozone retail sales data will keep investors busy.
Markets are eager for clues as to whether the data will dictate that the Fed will cut rates by 25 basis points (bps) or 50 basis points at its meeting later this month. Traders added to their bets with a 50 basis point cut after the vacancies and now estimate a 44% chance, down from 38% a day earlier.
Investors are also pricing in a 110 basis point cut at the remaining three Fed meetings this year, and if you factor in the Fed’s focus on the labor market, it looks like economic data will come under increasing scrutiny in the coming weeks more skittish investors.
Key developments that could impact the markets on Thursday:
Economic events: Eurozone retail sales in August; August construction PMI data for Germany, France and the Eurozone
(by Ankur Banerjee; editing by Edmund Klamann)