European stocks experienced a decline, while the US dollar recorded its third consecutive weekly gain as investors assessed the US labor data, which indicated a resilient job market ahead of the highly anticipated monthly jobs report. The MSCI All-World index remained relatively unchanged, and it is on track for its largest weekly drop in five months as government bond yields surged this week, pointing to slowing inflation and the possibility of an influx of US Treasury supply.
Market watchers are keenly observing the July US non-farm payrolls report. A Reuters survey of 80 economists predicts that payrolls increased by 200,000 last month following a rise of 209,000 in June. Economists who had previously predicted an economic downturn by the fourth quarter are now becoming more convinced that the soft-landing scenario envisioned by the US Federal Reserve might be plausible.
Michael Hewson, Chief Market Analyst at CMC Markets, noted that today’s US payrolls data is anticipated to highlight the resilience of the US economy. Last week’s data revealed a slight increase in the number of Americans filing for unemployment benefits and a drop in layoffs to an 11-month low in July, indicating tight labor market conditions.
The STOXX 600 index dropped 0.3% on the day, while both London’s FTSE 100 and Germany’s DAX declined by 0.4%. However, futures for the S&P 500 and the Nasdaq 100 showed a 0.2% gain, suggesting that earnings from technology giants may provide a boost to the market later on. Amazon reported sales growth and profit that exceeded analyst estimates, while Apple predicted a continued sales slump in the current quarter.
Francesco Sandrini, Head of Multi-Asset Strategy at Amundi, described the market as fragile and stated that the low volatility that has prevailed thus far is now facing a reality check. The US dollar increased by 0.1% against a basket of major currencies, heading for its third consecutive weekly gain. It has made considerable progress against some of this year’s better-performing currencies, such as the Australian dollar and the pound.
On a positive note, China’s yuan gained some respite after an official from the country’s central bank affirmed that policy tools would be used flexibly to ensure adequate liquidity in the banking system. Investors are hopeful that policymakers will implement broader-based stimulus measures to support the post-pandemic recovery amid weak demand both domestically and internationally.
Support for the US dollar was also derived from the Treasury market, where 10-year yields remained steady at nine-month highs, while 30-year bond yields experienced their largest weekly increase this year. Rating agency Fitch’s decision to downgrade the United States’ triple-A credit rating contributed to increasing focus on the country’s deteriorating fiscal position.
In terms of oil prices, they are on track for their sixth consecutive weekly gain due to expectations of reduced supply from Saudi Arabia and Russia. US crude rose by 0.3% to $81.81 a barrel, while Brent crude increased by 0.4% to $85.44.
As the market remains cautious and investors analyze economic data, the upcoming US non-farm payrolls report will be closely watched to gauge the strength and resilience of the labor market. Meanwhile, the dollar continues to make gains, and oil prices soar due to supply concerns. These developments will likely shape market sentiment in the coming days.
