Hopes rise that U.S. payrolls back bets on Fed rate hike pause

LONDON  – Global shares were steady on Friday as investors scrutinized China’s latest moves to bolster its flagging economy before turning to U.S. jobs data later for clues on whether the Federal Reserve will raise rates this month.

Oil was set to snap a two-week losing streak, heading towards $90 a barrel as tightening supplies put a floor under prices.

Falls in U.S. Treasury yields this week weighed on the dollar, which was on track to snap a six-week winning run ahead of the pivotal U.S. non-farm payrolls figures, due before the opening bell on Wall Street.

China stepped up measures to boost the economy, with top banks paving the way for further cuts in lending rates and Beijing also cutting the amount of funds institutions need to hold in foreign exchange reserves.

The MSCI All Country stock index was up 0.13 percent, up more than 13 percent for the year despite a battering in August when bond yields surged.

Kevin Thozet, a member of the investment committee at Carmignac, said he expects the Fed to leave interest rates unchanged in September, with a 50:50 chance of a hike when it meets again in November as steam starts to leave the jobs market.

“The U.S. economy is very resilient and keeps postponing the odds of a recession. It means that the soft landing scenario is gaining traction, there’s less of a risk that the Fed would have to do too much. That is one reason why markets are well behaved,” Thozet said.

Guy Miller, chief market strategist at Zurich Insurance Group, also expects the Fed to hit the pause button this month, with equities buoyed by bets of a soft landing in the U.S. economy after a string of rate hikes.

“The momentum element is quite important. But you have the tug of war between the soft-landing brigade with strong momentum, and the fundamentals that continue to deteriorate,” Miller said.

“One of the reasons the Fed is going to pause is that growth is weakening,” he added.

There are also doubts that the European Central Bank would hike rates when it meets this month as the euro zone economy sags, analysts said.

In Europe, the STOXX index of 600 companies was up 0.3 percent, leaving it about 7.8 percent higher for the year.

U.S. stock index futures were slightly firmer.

‘Proactive China’

All eyes are on Beijing’s efforts to revive the crisis-hit property sector and weak consumption, which are weighing heavily on the ailing economy.

Meanwhile, China’s factory activity surprisingly returned to expansion in August, beating estimates, a private-sector survey showed on Friday. Supply, domestic demand and employment improved, suggesting official efforts to spur growth might be having some effect.

Even though Beijing’s support measures so far are not large in scope, the fact that policymakers are announcing steps more rapidly may be giving markets confidence that authorities are now being more proactive, said Redmond Wong, Greater China market strategist at Saxo Markets in Hong Kong.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, while Japan’s Nikkei was up 0.3 percent.

China’s onshore yuan surged to a high of 7.2360 per dollar in the early Asian session, its strongest since Aug. 11, before last fetching 7.2625.

China’s benchmark index was up 0.7 percent, with the real estate gauge narrowing earlier gains to 0.35 percent.

The yield on benchmark U.S. 10-year notes rose to 4.1122 percent.

Two-year Treasury yields, which are particularly sensitive to rate expectations, have declined about 20 basis points this week to 4.86 percent, the biggest slide since mid-March. U.S. crude rose 0.3 percent to $83.86 per barrel and Brent was at $87.06, up 0.3 percent.

Spot gold was 0.1 percent firmer at $1,942 an ounce.

In cryptocurrencies, bitcoin unwound all of its gains for the week, last trading at $25,974 after dropping 5 percent overnight after the Securities and Exchange Commission (SEC)delayed a decision on whether to approve several applications for spot bitcoin ETFs.