Inflation fears once again struck the markets this Friday, posing an interesting question for this afternoon’s US nonfarm jobs report.
Surging bond yields gave the Dow Jones as kicking last night, leaving the index nearly 350 points lower and stuck the wrong side of 31,000.
Fed chair Jerome Powell played his part in this. Despite broadly brushing off concerns over the fall in bond prices, while stating that expectations of low inflation are unlikely to change, that wasn’t enough for investors. The markets wanted hints as to what the central bank would do if the situation worsens, and when that didn’t materialise, equities took a hit.
That’s fed into a rough European open, confirming whatever rebounding hopes opened the week (and month) have completely disappeared.
The losses in Europe were uniform, with the FTSE, DAX and CAC all down 1.1%. The UK index is now back at 6,570, while the German and French bourses are desperately flapping their wings above 13,900 and 5,760 respectively.
As for the Dow, it is heading for a 180 point fall after the bell. That would leave it at 30,750, its worst price in just over a month.
All of this could change, however, dependent on the nonfarm jobs report. It’s a strange one. Investors are likely going to be happier with a weaker reading than a strong one; with stimulus incoming, the suggestion of a healthy rebound in the jobs market is only going to stoke those inflation fears.
The bad news is that analysts are forecasting the headline nonfarm number to climb from 49,000 to 185,000 month-on-month. The good news is the reading has underperformed estimates in 4 of the last 5 months.
Elsewhere the unemployment rate is expected to hold at 6.3%, with average hourly earnings similarly unchanged at 0.2%.
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