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Stocks Show Signs of Steadying Ahead of Jobs Report

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12/07/2018 | 01:35pm CET

By Riva Gold

Global stocks showed signs of stabilizing near the end of a rocky week as investors looked to the U.S. monthly jobs report to provide a fresh signal on the course of interest rates.

The Stoxx Europe 600 rose 1.1% from a two-year low following its biggest daily loss since around the Brexit vote in June 2016, helped by a late-session recovery Thursday on Wall Street. Markets in Asia were mostly muted, while futures pointed to a 0.5% opening decline for the S&P 500.

The relative calm came after stocks around the world fell sharply Thursday when the arrest of a top Chinese tech executive and a steep drop in oil prices added to an already volatile trading environment.

The Dow industrials fell as much as 3.4% before recovering almost all of those losses in the final hour of the session after The Wall Street Journal reported Federal Reserve officials are considering whether to signal a new wait-and-see mentality at their meeting in December that could slow the pace of rate increases in 2019.

Investors have now dialed down expectations for a December interest-rate increase, with markets currently pricing a 73% probability, down from 83% a week ago, according to CME Group.

Looking father ahead, expectations for two or more increases by March have fallen to around 30% from 57% a month ago.

The prospect of tighter U.S. monetary policy had contributed to recent wild gyrations in markets amid worries that higher borrowing costs could hurt the economy at a time when markets were volatile and global growth was already showing signs of slowing.

For markets, "It's really a mix of resetting and adjusting to the growth outlook in the U.S., which is still okay but worse than before, and some negative surprises on the international scale," said Astrid Schilo, a multiasset strategist at Mediolanum Asset Management.

For markets, "It's really a mix of resetting and adjusting to the growth outlook in the U.S., which is still okay but worse than before, and some negative surprises on the international scale," said Astrid Schilo, a multiasset strategist at Mediolanum Asset Management.

Later in the day, the November jobs report is expected to help set the tone for markets with an update on the U.S. economy. The figures may carry particular weight in light of the Fed's emphasis on data dependence, and investors expect the pace of wage growth and strength of the labor market to be key factors in determining interest rates.

While the labor market has largely been considered a bright spot in 2018, the four-week moving average of jobless claims rose last week by 4,250 to 228,000--raising modest concern after touching a 49-year low in September.

"The pickup in jobless claims, to me that's more important than smaller gyrations in the [yield] curve," said Holly MacDonald, chief investment strategist at Bessemer Trust. "We think the labor market is still in pretty good shape, but that's been a pretty good indicator of the economy turning."

A range of other concerns have driven sharp swings in markets this week, and are expected to continue to amplify investor jitters: Parts of the yield curve, or the gap between long and short-dated U.S. Treasurys, turned negative this week, fueling fresh worries about the health of the American economy.

Separately, Trump administration officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs, reigniting worries about global trade.

American companies that import products are paying record amounts in customs duties.

In this environment, most major indexes in the U.S., Europe and Asia were still on track for sharp weekly declines, even with the recent bounce.

"The extreme nature of some of these moves on a day-to-day basis is somewhat unsettling," said Ms. MacDonald. "It's making people a bit more anxious, but we're trying to keep the conversation on long-term drivers and get through this."

On Friday, European equities bounced back from Thursday's declines, with every sector in positive territory. Still, the pan-European index was on track to end the week down 2.9%.

Asian markets recovered or stabilized after very steep drops Thursday. Shares of energy companies were mostly lower following oil price declines, while the technology sector largely rebounded.

Japan's Nikkei rose 0.8%, while the Shanghai Composite was flat and Hong Kong's Hang Seng edged down 0.35%.

Write to Riva Gold at riva.gold@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CHINA-SHANGHAI COMP -0.81% 2576.92 End-of-day quote.-22.24%
DJ INDUSTRIAL 0.35% 23675.64 Delayed Quote.-4.56%
HANG SENG -1.07% 25837.92 Real-time Quote.-12.75%
NASDAQ 100 0.67% 6491.5163 Delayed Quote.0.81%
NASDAQ COMP. 0.45% 6783.9114 Delayed Quote.-2.17%
NIKKEI 225 -1.81% 21118.43 Real-time Quote.-5.53%
S&P 500 0.01% 2546.16 Delayed Quote.-4.78%
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