European stocks are mostly higher as investors await a key jobs report that will help gauge the strength of the US economy and provide indications of the pace of Federal Reserve policy tightening in the second semester.
The pan-European STOXX 600 is up 0.16% after a strong trading session in Asia-Pacific overnight and after a positive session on Wall Street.
The MSCI World Stock Index, which tracks stocks in 50 countries, rose 0.17% on Friday and is on track for its second consecutive weekly gain after seven weeks of losses.
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Japan’s Nikkei 225 rose 1.27% and Australia’s resource-rich ASX 200 ended up 0.88%.
Markets in China, Hong Kong and the UK are closed on public holidays.
Investors are eagerly awaiting the full jobs report from the US Department of Labor, due at 12:30 p.m. GMT (10:30 p.m. AEST), for any hint of a slowdown in the labor market, which could give the Fed the chance slow down or even suspend interest rate hikes in the second half of the year.
“Employment will matter more in the months ahead because income and job security will matter more,” said UBS GWM chief economist Paul Donovan, who added that consumption will be driven by income – or income plus access to credit.
“As demand normalizes, companies starting to lay off workers will affect the balance of consumer spending and savings,” Donovan added.
A Reuters poll of analysts expects 325,000 non-farm payrolls to have been added in May, with average incomes slowing to 5.2% on an annual basis from 5.5% in April.
Balancing the outlook for growth and inflation is a big concern for central bank policymakers as they seek to avoid a hard landing and tip economies into recession.
Eurozone inflation hit a new record high in May, which markets see as a challenge to the European Central Bank’s view that gradual rate hikes will be enough to rein in rapidly rising prices.
“The euro zone inflation figure is a confirmation that even the ECB is now compelled, even if it faces a likely recession, to raise rates, perhaps faster or more aggressively than expected” , said Jeroen Blokland, head of research at the investment research platform. Real insights.
“I can imagine we’ll be testing the lows again somewhere in the coming weeks or even months,” Blokland added.
Money markets have now fully priced in a 25 basis point interest rate hike from the ECB at its July meeting, with tightening of around 124 basis points expected by the end of the year, which equates to nearly five increases of 25 basis points.
Markets also locked in back-to-back 50 basis point hikes from the Fed in June and July, but there remains uncertainty about what will happen after that.
European government bonds were slightly higher with lower than usual trading volumes given the holidays.
Germany’s 10-year government bond yield rose 2 basis points to 1.247% after briefly hitting a new eight-year high of 1.263% earlier in the session.
Italy’s 10-year yield was seen briefly rising in previous trading, but with futures markets barely moving, traders said that was due to the lack of liquidity in cash bonds on Friday.
The US Dollar edged lower as traders await the US jobs report.
The dollar index, which measures the greenback against a basket of six major currencies, fell 0.08% to 101.68.
Oil prices have fallen as markets adjust to the decision by OPEC+ oil producing countries to increase production.
Brent crude futures fell 1.2% to $116.25 a barrel, while U.S. West Texas Intermediate crude fell 1.3% to $115.38.
Gold prices fell 0.1% after hitting $1,873 an ounce, the highest level since May 9.