Áine Cain/Insider
- Global shares slid on Friday ahead of US monthly jobs data, as gloom grew over the economic outlook.
- Central bankers have this week raised rates to fight inflation, but the risk of a slowdown is rising, analysts said.
- Nonfarm-payrolls data are expected to show the labor market added another 391,000 jobs in April.
Global shares slid Friday ahead of key US employment data that may not be strong enough to offset the growing concern over the economic outlook, as central banks around the world raced to stave off inflation this week.
The Federal Reserve raised interest rates by a half point to 1% on Wednesday, initially giving markets a boost as investors got no indication from Chair Jerome Powell that the central bank is planning more aggressive increases ahead.
But that optimism gave way to a hefty sell-off on Thursday, which saw the Dow Jones post its largest one-day loss in almost two years.
US stock index futures suggested another weak start to the day on Friday, with those on the S&P 500, Dow Jones and Nasdaq 100 down between 0.6 and 0.7%.
US government data later Friday is expected to show 391,000 workers were added to nonfarm payrolls in April, following March’s robust 491,000 increase.
Given the Fed’s laser focus on fighting inflation, which is running at its highest since the early 1980s, even a strong read may not be enough to dispel the chances investors are attaching to the central bank’s ability to avoid a “hard landing” for the economy.
“As you know, our view is that the Fed won’t be able to achieve a soft landing, and that a recession is coming,” Deutsche Bank strategist Jim Reid said.
“I can’t help but think that a great deal of the reaction yesterday was the appreciation that whilst the Fed can make soothing pronouncements, they are starting from an extraordinarily difficult starting point, and with limited flexibility to respond to market or economy concerns whilst they fight inflation,” he said.
Benchmark 10-year Treasury notes are currently yielding the most in over three years, thanks to investors ditching government bonds as interest rates rise. The 10-year yield was last up 4 basis points on the day at 3.075%. It was roughly half that level at the start of 2022.
Outside the US, the Bank of England raised interest rates on Thursday to a 13-year high of 1%. It forecast the UK economy will enter recession next year, while inflation is expected to spike up into double digits, which pushed the pound to a two-year low against the dollar.
“Speaking of the economic environment, it’s nothing short of a grim one, according to the Bank’s latest forecasts. Inflation is set to peak north of 10% in the fourth quarter, while the economy is set to contract by 0.25% next year; albeit, avoiding technical recession, just. What a depressing picture,” Caxton FX strategist Michael Brown said.
Sterling was last down 0.4% on the day against the dollar at $1.2315, around its lowest in two years, while against the euro, it was down 0.1% at 87.25 pence.
On the equity markets, the FTSE 100 was down 0.5%, while Frankfurt’s DAX lost 0.8% and the pan-European Stoxx 600 fell 0.9%, echoing weakness in Asia, where Shanghai’s CSI 300 dropped 2.5%, as concern persisted over the economic impact of China’s COVID-19 outbreak.
Oil edged higher, buoyed by the prospect of a shortfall in supply from a gradual ban on Russian crude and products by the European Union that could become fully effective in six months.
Brent crude was last up 0.4% on the day at $111.41 a barrel, while WTI futures rose 0.4% to trade around $108.73.
Bitcoin fell 8.2% over 24 hours to $36,343, according to CoinMarketCap data, after having lost almost 8% on Coinbase the previous day.
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