Feb 3, 2023

The keenly watched U.S. non-farm payrolls report, due out on Friday, could now be crucial to supporting the recent stock rally. "If we are seeing an easing of net job creation, that would allow the Fed to just do one more rate hike of 25 basis points and that would be the end of the cycle," said Willem Sels, global chief investment officer at HSBC's private bank. Reuters | Updated: 03-02-2023 16:49 IST | Created: 03-02-2023 16:49 IST SHARE A global stock rally, powered by hopes of central banks ending aggressive rate rises, ran into roadblocks on Friday following weak earnings from U.S. tech giants and as U.S. jobs data loomed. The MSCI World Stock Index slipped 0.1%, but was still near its highest since August following a sharp rebound in recent weeks on hopes that the phase of rate hikes could be nearing its end. Wall Street stock futures fell, with contracts on the tech-heavy Nasdaq 100 1.5% lower, on disappointing earnings from Google, Apple and Amazon . S&P 500 futures slid 0.8%. Investors are also watching the fallout from this week's plunge in shares of India's Adani group, which continued to nosedive on Friday with market losses amounting to $115 billion in the wake of a U.S. short-seller's report. In Europe, the Stoxx 600 share benchmark fell 0.4%. Germany's benchmark 10-year bond yield inched almost 8 basis points (bp) higher to 2.14%, having on Thursday dropped by the most since 2011 as prices shot higher. This week, the U.S. Federal Reserve, the European Central bank (ECB) and Bank of England (BoE) all increased benchmark borrowing costs and warned of more hikes to come. Markets initially shrugged off the hawkishness, however, and clung to a statement by Fed chair Jay Powell on Wednesday that the United States was in the early stages of "disinflation." The mood turned much more cautious on Thursday, however, as U.S. tech shares took a beating in after-hours trading. Apple projected another revenue decline in the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Google parent Alphabet missed fourth-quarter profit and revenue expectations. The keenly watched U.S. non-farm payrolls report, due out on Friday, could now be crucial to supporting the recent stock rally. "If we are seeing an easing of net job creation, that would allow the Fed to just do one more rate hike of 25 basis points and that would be the end of the cycle," said Willem Sels, global chief investment officer at HSBC's private bank. "We will see headwinds from further earnings downgrades, but we have incorporated quite a lot (of this) already so I think markets can hold here if we are indeed right on the Fed." U.S. job growth likely remained strong in January, with economists polled by Reuters expecting 185,000 new jobs created. Hourly wages are predicted to have risen by 0.3% from the month before, although the unemployment rate is also forecast to have ticked up to 3.6% from 3.5%, which may give the Fed comfort that wage inflation could decline. Alan Ruskin, macro strategist at Deutsche Bank, said that given the current market price action ahead of the U.S. payrolls data, a softer report would be regarded as endorsing all the favourite trades of the year. "Not least it would provide the most important evidence to date to suggest that the market's rates pricing is more appropriate than the Fed's own more hawkish signalling," Ruskin said. Futures markets favour another 25 bp hike from the Fed in March and imply that might be the end of the tightening cycle. They have also priced in two rate cuts by the end of this year, a scenario Powell dismissed. In currency markets, the euro traded at $1.0934, pulling further away from Thursday's 10-month top of $1.1033. Sterling rose 0.3% to $1.2238, supported by an upward revision to services activity data, after tumbling 1.2% the previous session. An index measuring the dollar against major currencies stood at 101.56, just away from its nine-month low of 100.80. Treasury yields held largely steady. The ten-year was flat at around 3.39%, while the two-year , which follows traders' expectations of higher Fed fund rates, was also flat at around 4.08%. Brent crude futures meanwhile reversed earlier gains and dipped 0.2% to $81.98 per barrel, while U.S. West Texas Intermediate (WTI) crude was also down 0.2% at $75.73. (Additional reporting by Stella Qiu in SYDNEY, Editing by Dhara Ranasinghe, Toby Chopra and John Stonestreet) (This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.) READ MORE ON: