July 5 2024: Global equity markets hit fresh record highs on optimism about a potential U.S. rate cut, with key jobs numbers expected later on Friday. Meanwhile, the euro reached a three-week high ahead of this weekend’s French elections.
Sterling and UK stocks rose as Britain’s Labour Party was projected to achieve a landslide victory after 14 years of Conservative rule.
In Europe, attention was shifting from the UK election, whose outcome was widely expected, to Sunday’s second-round election in France. French stocks, which had dropped sharply following last month’s surprise election announcement, have since recovered. The euro has also benefited from renewed speculation of a U.S. rate cut.
Trading was subdued following the U.S. July 4 holiday but is expected to increase after the release of the June U.S. non-farm payrolls report.
“We’re in the summer holiday sweet spot for markets, with investors focused on inflation coming down to target in big economies,” said Guy Miller, chief market strategist at Zurich Insurance Group (OTC). “Weaker U.S. data is positive for the inflation outlook and that means rate cuts are back on the table,” he added.
MSCI’s world stock index reached a new record high, currently up 0.07%. European shares rallied 0.3%, while Japan’s Nikkei and broader Topix also hit record levels.
U.S. stock futures suggested a slightly positive open for Wall Street. Following the UK election results, London’s FTSE 100 index opened 0.38% higher. The yield on 10-year British government bonds dropped 3 basis points to 4.17%, aligning with other European markets. Sterling inched up to around $1.2779.
“A landslide victory provides the clarity and stability that equity markets need in an increasingly volatile world,” said Ben Ritchie, head of developed market equities at Abrdn.
Jobs in Focus
Nonfarm payrolls likely increased by 190,000 jobs last month after a surge of 272,000 in May, according to a Reuters survey of economists. Over the past 12 months, employment gains have averaged about 230,000 jobs per month.
Zurich’s Miller noted a weakening in recent employment data and suggested that a softer-than-expected payrolls number would support the case for a U.S. rate cut in September.
U.S. Treasury yields were little changed in early London trade, with two-year yields around 4.69% and benchmark 10-year yields marginally up at 4.36%.
In currency markets, the euro rose to $1.0825 as polls indicated France’s far-right National Rally would fall short of an absolute majority in Sunday’s parliamentary runoff.
“If the polls prove accurate, the more extreme policies of fiscal expansion and immigration curbs are unlikely to pass,” said MUFG analyst Michael Wan.
The dollar was down about 0.35% at 160.75 yen. The Australian dollar hit a six-month high of $0.6738, underpinned by bets that the next move in Aussie rates might be up due to stubborn inflation.
Bitcoin was set for its biggest weekly fall in over a year amid concerns about the potential dumping of tokens from the defunct Japanese exchange Mt. Gox and further selling by leveraged players following the cryptocurrency’s strong run. It dropped as much as 8% on the day to $53,523, its lowest since late February.
Gold rose 0.3% to $2,363.25 per ounce and was set for a second straight weekly gain. Oil prices were poised for a fourth consecutive week of gains. Brent crude futures held above $87 a barrel following a larger-than-expected drop in U.S. crude stocks, suggesting strong demand as the U.S. summer driving season begins.
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