European stocks and Wall Street futures edge lower ahead of US jobs report

European equities and Wall Street stock futures started Monday in the red after turbulent trading last week, as traders fretted about stagflation and central banks withdrawing pandemic-era monetary stimulus.

The Stoxx Europe 600 share index fell 0.5 per cent in early dealings while the UK’s FTSE 100 was flat. In the US, futures markets signalled the blue-chip S&P 500 share index would lose 0.3 per cent.

The US Federal Reserve, which focuses on employment as well as inflation, has pledged to continue with its $120 billion (€102 billion) of monthly bond purchases, which have suppressed borrowing costs and boosted equity valuations, until it sees “substantial further progress” towards its goals.

Debt

Analysts polled by Bloomberg expect Friday's non-farm payrolls report to show US employers hired almost half a million new workers last month, while Fed chair Jay Powell has signalled the central bank could announce a reduction in its debt purchases as early as November.

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"All roads this week point to payrolls Friday," said Deutsche Bank strategist Jim Reid. "Unless there is a marked deterioration across the whole sweep of labour market indicators within the report, this will probably be the catalyst to cement the November taper."

Daiwa economist Chris Scicluna said a jobs report that met expectations would likely provide the “outcome that Jay Powell is seeking to confirm the start of QE [quantitative easing] tapering” at the central bank’s December meeting.

The Stoxx and S&P 500 both dropped more than 2 per cent last week, hit by surging oil and natural gas prices and fears of tighter monetary policy as the Delta coronavirus variant continued to sweep across the US.

The Bank of England last month warned that UK inflation could top 4 per cent into next year, while Norway’s central bank raised interest rates. The Reserve Bank of New Zealand, which holds its next monetary policy meeting on October 6, is widely expected to raise borrowing costs by a quarter of a percentage point to combat rising inflation.

The Institute for Supply Management's purchasing managers' index for the US services sector is expected on Tuesday to show "diminished momentum in US activity amid intensified infection risks from the Delta variant", analysts at Barclays said in a research note.

Yield

The yield on the US Treasury bond, which moves inversely to its price, was steady at 1.47 per cent after climbing from about 1.3 per cent in late September.

The dollar index, which measures the US currency against six others including the euro and sterling, was flat at just below its one-year high reached last week.

In Asia, Hong Kong’s Hang Seng share index dropped 2.3 per cent, dragged down by worries about a slowdown in China’s all-important property sector amid a debt crisis at major homebuilder Evergrande.

Chinese media reported on Monday that Evergrande would sell a half stake in its property management business while trading in its Hong Kong shares was suspended. Beijing has moved to limit leverage and speculation in real estate, which Morgan Stanley strategist Michael J Wilson said would “weigh on China’s growth” in a manner that “is probably not fully priced in” to global markets.

Tokyo’s Nikkei 225 share index fell 1.1 per cent while mainland Chinese stock markets were closed for a holiday.

Brent crude, the international benchmark, fell 0.5 per cent to $78.86 a barrel but remained close to a three-year high. – Copyright The Financial Times Limited 2021