European stocks slide, oil rallies, traders await US jobs data

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LONDON, Aug 5 (Reuters) – European stocks fell slightly on Friday but were still poised for a weekly gain as traders waited for U.S. jobs data later in the session to give hints on the health of the world’s largest economy.

The MSCI Global Equity Index, which tracks stocks from 47 countries, rose 0.2% and is on track for a weekly gain of 0.7% – marking its third consecutive week of gains (.MIWD00000PUS) .

Asian stocks rose overnight, but as of 08:23 GMT, the STOXX 600 was down 0.1% (.STOXX), France’s CAC 40 (.FCHI) and Germany‘s DAX (.GDAXI) were flat. London’s FTSE 100 was down 0.2% (.FTSE).

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Central banks around the world have raised interest rates in an attempt to curb soaring inflation, but European stocks have recovered to near two-month highs this week.

“Equity futures have become comfortable with the idea that interest rate hikes imposed by central banks will be enough to contain inflation over the longer term,” said Kiran Ganesh, multi-strategist. active at UBS.

But other asset classes are showing a slowdown.

The closely watched part of the U.S. Treasury yield curve measuring the spread between two- and 10-year Treasury yields hit 39.2 basis points on Thursday, the deepest inversion since 2000.

An inverted yield curve is often considered an indicator of a future recession.

Oil rose, rallying after the previous session saw prices hit their lowest levels since February. Concerns about supply shortages were enough to quash fears of weakening fuel demand. Read more

Global crude oil markets remained firmly in reverse, where rapid prices are higher than in the months ahead, indicating tight supplies.

Investors will look to US jobs data to see if the aggressive pace of US Federal Reserve rate hikes is starting to slow economic growth.

The data is expected to show nonfarm payrolls increased by 250,000 jobs last month, after increasing by 372,000 in June.

“So far, markets have reacted to stronger economic data as good news. But at some point, they may wonder if Fed tightening is having the intended effect if the economy remains strong,” ING economists wrote in a note to clients.

“At this point, they might start worrying that rates might go up or stay higher for longer.”

UBS’s Ganesh said a nonfarm payrolls figure of between 200,000 and 300,000 would be consistent with a ‘soft landing’ for the economy, while a higher figure would suggest the Fed needed to raise increase interest rates to contain demand.

Thursday’s data showed that the number of Americans filing new claims for unemployment benefits increased last week, suggesting that a weakening in the labor market may already be underway. Read more

Cleveland Fed Chair Loretta Mester struck a hawkish tone Thursday, saying the Fed should raise interest rates above 4% to bring inflation back to its target. Read more

The US dollar index rose around 0.2% and the euro fell 0.2% to $1.02265. The Aussie dollar, seen as a liquid indicator of risk appetite, fell 0.1% to $0.6958. Read more

The pound was down 0.1% at $1.215.

The Bank of England raised interest rates to the highest level in 27 years on Thursday and warned of a long recession ahead. Read more

European government bond yields were typically 1-2 basis points higher, with the benchmark German 10-year yield at 0.812%.

German industrial production recorded an unexpected but modest increase in June, according to official data.

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Reporting by Elizabeth Howcroft; Editing by Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.

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