Tuesday 15:30 BST. European stock markets are tracking a mostly positive Asian session as Wall Street edges away from record levels amid signs investors are more comfortable with the prospect of the Federal Reserve potentially raising interest rates by the end of the year.
The dollar is firmer, which has undermined the yen and helped Japanese shares hold their ground as traders absorb a batch of slightly better than expected data on the world’s third-biggest economy.
In New York, the S&P 500 is down 0.2 per cent at 2,176 in mid-morning trade, 14 points shy of its best ever close, but not helped by a soft showing for Apple after the iPad maker was hit with a €13bn tax penalty.
The pan-European Stoxx 600 is up 0.5 per cent, with energy stocks inching higher even as Brent crude slips 0.5 per cent to $49.01 a barrel. London’s FTSE 100 is returning from a day’s holiday to trade down 0.3 per cent, pressured by weakness in miners as base metal prices wilt.
European financial stocks are generally firmer, taking a cue from an upbeat start to the week for their US peers, which came after Federal Reserve chair Janet Yellen at the Jackson Hole symposium expressed confidence that the case for an interest rate rise had strengthened.
Investors think the banking sector will benefit from official borrowing costs moving away from record lows because it will improve their lending margins.
Traders are now turning their attention to Friday’s non-farm payrolls report, which Stanley Fischer, the Fed’s vice-chair, said on the sidelines of Jackson Hole would weigh heavily on the decision whether to raise interest rates at the September meeting.
Futures markets are pricing in a 36 per cent chance that the Fed will raise rates by 25 basis points next month, up from 24 per cent a week ago. This shift has helped push up the dollar but YS Treasuries are having a relatively quiet session.
The 10-year Treasury yield, which moves inversely to the bond price, is flat at 1.56 per cent, but the equivalent maturity German Bund is off 5bp to minus 0.10 per cent as soft confidence data means the European Central Bank likely will remain in monetary easing mode
The dollar index is up 0.4 per cent to 95.99 as the euro falls 0.3 per cent to $1.1150 and the Japanese yen dips 0.7 per cent to ÂĄ102.63 per buck.
The drop for the yen helped underpin Japan’s export sensitive stock market, leaving the Nikkei 225 barely changed on the day as a batch of decent economic data had a muted impact.
The jobless rate fell to 3 per cent in July, the lowest level since May 1995, while the pace of decline in household spending and retail sales moderated.
“Today’s labour market data showed that job growth accelerated further in July. As the number of people in paid employment continues to rise rapidly, consumer spending should recover further this quarter,” said Marcel Thieliant at Capital Economics.
Analysts at Barclays said the improvement in the unemployment rate reflected a labour shortage caused by demographic and structural factors rather than improvements in the economic trend. “In our view, the content of Japanese labour indicators suggests a need for more thorough labour market reforms,” they said.
Elsewhere in Asia-Pacific, Australia’s S&P/ASX 200 was up 0.2 per cent and Hong Kong’s Hang Seng gained 0.9 per cent. On the mainland, China’s Shanghai Composite rose 0.2 per cent while the technology-focused Shenzhen Composite added just 0.1 per cent.
Analysts at Bank of America-Merrill Lynch noted that Asia ex-Japan equities were up some 25 per cent from this year’s lows, and emerging market stocks are up one-third. The bank said it remained bullish on Asia and emerging markets over the longer term, but was “turning tactically neutral” for a while.
“After such a breathless rally in Asia/EMs, we need to pause for breath,” BofA-ML said.
Gold, which is sensitive to interest rate expectations, is down $4 to $1,318 an ounce, after snapping a six-day losing streak on Monday with a $2 advance.
