A look at the day ahead in European and global markets from Vidya Ranganathan.
Global stocks are having their strongest weekly rally in a year, global yields are sliding and corporate earnings reports have been surprisingly robust.
If all goes to plan, markets end what has been a turnaround week with a U.S. jobs report that underpins the optimism around peak global rates.
World stocks are up 4.2% for the week so far, their largest weekly rise since November 2022. The S&P 500 chalked up its best day in six months, also boosted by strong corporate earnings and guidance - Apple (NASDAQ:AAPL) reported forecast-beating quarterly sales and profit, although shares fell slightly in after hours trade.
The premise is that the Federal Reserve, Bank of England, European Central Bank and other central banks are done raising rates.
If the Fed delivered a 'dovish' pause on Wednesday, the BoE delivered a 'hawkish' pause on Thursday. But the over-arching reaction across markets was the same - huge rallies in bonds, stocks and risk assets. Ten-year gilts had their sharpest rally in more than a month.
The three main Wall Street indexes are well on course to register their strongest week of the year, all eyeing weekly gains of around 5%.
Investors are now looking to when the easing cycles start and how far they go. Around 70 to 75 basis points of Fed easing next year is priced into the U.S. curve, and almost 50 bps of expected rate cuts is reflected in the UK curve.
The U.S. 10-year yield is down around 40 basis points from its peak above 5% only a few days ago and the dollar is slipping. That's music to emerging market ears.
Markets are now pricing in a less than 20% chance of a Fed rate rise in December compared with 39% a month earlier, CME FedWatch tool showed. Yet, some tensions remain after the resilience in factory orders data elevated 2-year yields even as Treasury borrowing plans and Fed Chair Jerome Powell's inflation views bumped up 10-year notes.
Friday's employment report for October is expected to show that employers added 180,000 jobs during the month. Average hourly earnings are expected to have increased by 0.3% in October, following a 0.2% gain in September..
A Japanese markets holiday has trussed the yen to around 150.40 per dollar, towards the end of a whirlwind week when it hit a one-year low against the dollar and 15-year low against the euro after the Bank of Japan tweaked its yield curve control policy. Traders however remain on watch for signs of intervention from Japanese authorities.
Key developments that could influence markets on Friday:
Q3 Earnings: Societe Generale (OTC:SCGLY) SA, Swiss Re (OTC:SSREY) AG, AP Moeller - Maersk A/S
Economic data: U.S. October payrolls, Germany Sept trade, France Sept industrial production, euro zone Sept jobs
Speakers: BOE's Jonathan Haskel, Andrew Hauser. Bank of England chief economist Huw Pill gives an online presentation of the central bank's new forecasts and latest policy decision
Debt auctions: United Kingdom - Reopening of 1-month, 3-month and 6-month government debt auctions
(By Vidya Ranganathan; Editing by Jacqueline Wong)