Stock markets subdued ahead of US jobs data

European shares and Wall Street stock futures were muted on Friday ahead of a widely anticipated US jobs report that investors will scrutinise for clues about the future direction of monetary policy.

The regional Stoxx Europe 600 gauge was up 0.1 per cent in early afternoon London trading. Futures contracts tracking Wall Street’s S&P 500 were flat, after the index lost 1 per cent in the previous session.

Those subdued moves came ahead of the publication of a closely watched monthly jobs report from the US labour department at 13:30 UK time. Economists polled by Reuters expect the pace of US jobs growth to have cooled in September, with employers adding an estimated 250,000 new positions in September — down from 315,000 in August.

Investors will also monitor average hourly earnings, which economists expect to have increased by 0.3 per cent month on month — the same rate as the previous period.

“[This] is arguably the most relevant part of the payrolls report for markets, as wage inflation is where second-round effects come from, risking the manufacture of permanently elevated inflation,” wrote analysts at ING ahead of the release.

A report on Thursday showed that first-time jobless claims in the US came in higher than expected for the week ending October 1. Those numbers followed a disappointing release on Tuesday on job openings in the world’s largest economy.

The level of heat in the labour market is seen as a key influence on decision-making by the US Federal Reserve, with signs of loosening typically fuelling hopes that the central bank will take a less aggressive approach to monetary policy tightening. The Fed has raised interest rates by an extra-large 0.75 percentage points over three consecutive meetings in its efforts to curb inflation.

But some investors said it was too soon to anticipate a change of course by the Fed.

“It’s too early to expect a pivot at the Fed level,” said Gergely Majoros, a member of the investment committee at Carmignac. “The bar is so high. We’d need a labour market that’s weaker, inflation coming down, some stress in the market, or some sort of accident. We’re not there yet.”

Equity markets have broadly come under pressure this year, with rising borrowing costs hitting companies’ valuations and fears intensifying that the Fed and its peers will lift rates into a protracted slowdown.

Cautious optimism had, at the start of the week, spurred the strongest two-day advance for the S&P 500 in more than two years, before sentiment faltered on Wednesday.

“What’s complicated for us is knowing whether it’s a bear market rally . . . or whether we can build a bottom in equities and bonds. That’ll depend on the reaction of central banks,” said Nadège Dufossé, global head of multi-asset strategy at Candriam.

Government bond prices edged lower on Friday, with the yield on the 10-year US Treasury note adding 0.02 percentage points to 3.84 per cent. The 10-year UK yield rose 0.03 percentage points to 4.2 per cent.

The UK gilt market had convulsed last week following the announcement of the new government’s “mini” Budget, which had sparked concerns over the scale of borrowing needed to finance proposed tax cuts.

The pound rose 0.3 per cent against the dollar to trade at $1.119, after falling in the two previous sessions. The currency remains well above the record low of $1.035 it fell to on September 26.

The dollar slipped 0.1 per cent against a basket of six peers.

In Asian equity markets, Japan’s Topix fell 0.8 per cent and Hong Kong’s Hang Seng fell 1.3 per cent.