European stocks posted modest gains with U.S. equity futures as a cautious tone settled over markets the day before key U.S. jobs data that will shape bets on the path of Federal Reserve policy tightening.
Travel firms led the Stoxx Europe 600 higher for a second day, while consumer non-cyclical and miners fell. S&P 500 futures also ticked higher after the main gauge closed flat on Wednesday. Ten-year U.S. Treasury yields were steady just below 1.30%. The dollar was little changed.
All eyes are turning to U.S. payrolls data due Friday for clues on the economy and the implications for a reduction in the Fed’s $120 billion of monthly bond purchases.
Investors are trying to assess when the delta-variant virus outbreak might peak and how that will play into the timing of Fed bond taper plans. Global stocks are near record levels and gauges of implied financial market volatility are declining, suggesting many remain optimistic that the reopening from the health crisis will weather challenges.
At the same time, a move into defensive havens such as mega-tech stocks that epitomized the stay-at-home trade suggests investors remain wary of virus disruptions and a growth slowdown. The latest ADP Research Institute data showed U.S. companies added fewer jobs than expected in August. Manufacturing expanded at a stronger-than-estimated pace but faced supply snarls.
Still, a handful of respected bond forecasters are backing the view that continued economic momentum will lead to higher yields. Famed investor Bill Gross said 10-year yields “have nowhere to go but up” and are set to reach 2% over the next year. The yield has the scope to hit 1.90% in the coming months, according to JPMorgan Chase & Co. technical strategist Jason Hunter.
“The market is fading Covid more as a risk in terms of really hampering economic activity,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “We think the Fed is going to stick with their word and they will start tapering later this year. But we don’t think they are going to be in any hurry to raise interest rates”.
Elsewhere, Chinese tech shares listed in Hong Kong came off their highs after criticism of ride-hailing firms highlighted risks from the nation’s ongoing crackdown on private industries. China’s overall market was steady, with traders assessing a central bank step to cushion the economy by helping smaller firms.
Oil edged higher after OPEC+ stuck with a plan to boost crude production, with wagers that the market can absorb the additional supply.