Energy shares lead stocks higher; bonds fluctuate
Markets have are closely watching developments in the US trade war with China
New York, London: US stocks edged higher on Friday, led by gains in energy related companies. Treasuries fluctuated after weaker-than-expected jobs data bolstered speculation the Federal Reserve may have room to slow tightening next year.
The S&P 500 fluctuated between gains and losses in early trading as the data failed to address concern whether the economic growth may be slowing. The 10-year Treasury yield slipped as low as 2.86 per cent and the dollar slid against major peers as investors assessed whether the report will bolster central-bank doves.
“It was a Goldilocks report,” said Alec Young, managing director of global markets research at FTSE Russell. “Weak enough to convince investors the Fed can slow their tightening, but strong enough not to get people more worried about a recession.”
Away from jobs and rates, markets have are closely watching developments in the US trade war with China. The arrest of the chief financial officer of Huawei is seen as exacerbating tensions as the two sides are supposed to be working to reach a deal. Trump tweeted Friday that talks are “going very well,” though he supplied no details.
In Europe, stocks rebounded from the worst day in more than two years, while Asian shares posted modest gains as investors sought to end a bruising week on a more upbeat note.
European stock markets recovered slightly on Friday, the end of an extremely volatile week, as investors weighed the outlook for China-US trade talks and oil production, while looking ahead to the release of key US jobs data.
The dollar was higher versus the euro, pound and yen.
Around 1130 GMT, London’s benchmark FTSE 100 index was up 1.4 per cent, having closed down almost 3.5 per cent Thursday.
Tokyo closed 0.8 per cent higher Friday, Shanghai ended flat and Hong Kong finished down 0.4 per cent after a late sell-off.
“European stocks have rallied ... following the impressive comeback that US markets underwent last night,” noted David Madden, market analyst at CMC Markets UK.
“The huge swing we saw in US markets yesterday underlines the volatility in markets, and that nervousness still exists.”
He added: “One good morning doesn’t make up for the dismal week ... and some investors are likely to be playing the wait-and-see game until the US jobs report is released later today.”
Italian debt climbed as European bonds largely drifted. The pound was steady as UK Prime Minister Theresa May was said to be weighing a plan to postpone the vote on her Brexit deal.
This week’s sell-off was precipitated by the inversion of part of the US yield curve, which has previously been a reliable indicator of an impending recession.
It deepened on Thursday after the chief financial officer of China’s Huawei was arrested on a US request, sending markets spiralling further as investors predicted a worsening of relations between the world’s two biggest economies.
The anxiety drove investors to pull $5.2 billion from equity funds and $8.1 billion from bond funds, according to EPFR data cited by BAML.
“Markets starting to price in recession, but policymakers yet to price in recession,” argued the BAML strategists.
Equity outflows were made up of opposite flows in ETFs and mutual funds, with $5.3 billion driven into ETFs while $10.5 billion was taken out of mutual funds.