LONDON and TOKYO: According to Reuters, global equities were set to end the first week of 2023 on a sour note, with the dollar holding firm as fears of higher US interest rates weighed on market sentiment.
Despite a brief rally earlier in the week, the MSCI World equity index traded steadily on Friday, on track for its fifth consecutive weekly drop.
The dollar also hit a one-month high against major currencies on Friday, as investors awaited the release of the US non-farm payrolls report later in the day.
The official jobs report comes after private payrolls data showed a larger-than-expected increase in employment and a drop in jobless claims on Thursday, underscoring the Fed’s determination to avoid a doom loop of rising wages and prices that would keep high inflation in the world’s dominant economy for longer.
Investors have begun “to price in a more aggressive path of Fed rate hikes,” according to Deutsche Bank strategist Jim Reid.
According to a Reuters poll of economists, the non-farm payrolls report on Friday is expected to show that 200,000 jobs were created in December, down from 263,000 in November but still roughly double the level the Fed considers sustainable.
Traders will also focus on any increases in hourly wages, Reid warned, “given the Fed’s focus on wage inflation,” while there is “little doubt” about the labor market’s strength.
Two-year Treasury yields in the United States reached a more than two-month high of 4.497 percent overnight before falling to 4.4561 percent in early European trading. The 10-year yield fell to 3.7088 percent after rising as high as 3.784 percent overnight in New York.
“There is concern that the labor market is not cooling,” putting financial markets “very much on edge,” according to Tony Sycamore, an IG market analyst.
The dollar index, which compares the greenback to six currencies, including the yen and euro, was at 105.24, having previously reached 105.31 for the first time in a month.
The dollar index is up about 1.7 percent this week, putting it on track to end a three-week losing streak. It is on track to be the best performance since late September.
In Europe, the broad Stoxx 600 equity index opened 0.4 percent higher on Friday, as falling gas prices and mild winter weather raised hopes that the region would be able to overcome the worst of its inflation crisis. The Xetra Dax in Germany was unchanged.
US E-mini stock futures were unchanged after the S&P 500 fell 1.16 percent overnight.
The euro was little changed at $1.05255, having previously fallen to $1.0511, a level last seen on December 12.