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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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This week’s stream of major macro moments around the world has seen signs of a slight softening of U.S. labor markets go under the radar a bit – but it will top the agenda on Friday.

To the extent that a cooling jobs market warns the Federal Reserve not to delay too long in cutting interest rates, then rising layoffs, jobless claims and falling job openings may be partly responsible for the fresh effervescence in stocks.

Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on Capitol Hill in Washington, U.S., March 7, 2024. REUTERS/Tom Brenner

February payrolls are expected to have increased by 200,000 jobs after adding 353,000 positions in January and the jobless rate likely stayed at just 3.7%.

Surf’s well and truly up again on Wall St after a wobbly start to the week and futures were higher again ahead of the report.

Both the S&P500 and Nasdaq surged more than 1% each to new records on Thursday as Fed chair Jerome Powell reprised his congressional testimony in the Senate and nodded clearly to rate cuts ahead as the central bank becomes more confident it has inflation back in its box.

“When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”

The message was enough to remove all remaining doubts in futures markets that the Fed will now cut as soon as June and deliver up to 95 basis points of easing this year. Treasuries were buoyed, even ahead of another heavy week of debt sales, and 10-year yields hit one-month lows.

And after its latest policy update on Thursday, the European Central Bank is also now nailed on to cut rates in June – as hawks concede easing is now necessary and even as some of its more dovish members push for the move as soon as next month.

Banque de France head Francois Villeroy de Galhau said a rate cut should happen in the spring, which he added was “from April until June 21”.

“The probability is increasing that we could possibly see a rate cut before the summer break,” the normally hardline Bundesbank boss Joachim Nagel said on Friday.

The prospect of the ECB jumping the gun on the Fed reined in the euro somewhat on Friday, but the dollar has generally been a casualty of the stepped-up easing expectations and its index hit the lowest since mid January.

That’s mainly because the Bank of Japan is heading in the opposite direction – likely tightening its super-loose monetary policy as soon as this month and sending the yen to its best levels in five weeks.

Amid a series of press rumblings and official statements this week, Reuters sources on Friday said growing number of BOJ policymakers had warmed to the idea of ending negative interest rates in March as the annual wage round looks set to be robust.

But they added that some still urge a delay until April to wait for next month’s “tankan” business sentiment survey and the bank’s regional branch managers’ report on the wage outlook.

After Thursday’s setback, however, Japan’s Nikkei stock benchmark brushed off the speculation and rose 0.2%.

Stocks gained in China too, encouraged by this week’s upbeat trade numbers and as the country’s securities regulator vowed to protect small investors by cracking down on market misbehaviour and improving the quality of listed companies.

And on Friday Bloomberg reported that China is in the process of raising more than $27 billion for its largest chip fund to date to accelerate the development of cutting-edge technologies to counter a U.S. campaign to thwart its rise.

Elsewhere in politics, President Joe Biden late Thursday laid out his case for re-election in a fiery State of the Union speech that accused Donald Trump of threatening democracy, kowtowing to Russia and torpedoing a bill to tackle U.S. immigration woes.

In company news, the soundings were more mixed overnight.

Broadcom said it expects $10 billion in revenue from chips related to artificial intelligence this year, but its stock dipped after the tech company’s full-year forecast failed to impress investors. Smaller rival Marvell Technology forecast revenue below market expectations, sending its stock down over 6% in extended trading.

There was better news for the ailing New York Community Bank, whose shares perked up after it said it’s seeing interest from non-bank bidders for some of its loans and will outline a new business plan next month.

And in Europe, Novo Nordisk on Thursday surpassed Tesla in market valuation after the maker of the popular weight-loss drug Wegovy announced positive early trial data for a highly anticipated new obesity drug.

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