European equities and global government bonds drifted on Thursday as investors held back from strong bets ahead of US jobs data that could pile pressure on the Federal Reserve to rethink its ultra supportive monetary policies.
The Stoxx 600 index traded flat, hovering close to an all-time high reached in April. The yield on the benchmark US Treasury bond, which moves inversely to its price, was steady at 1.57 per cent. In London, the FTSE 100 rose 0.1 per cent.
Economists expect the US government to report that the rapidly rebounding economy added about 1m jobs in April. Investors are set to scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.
Up to 1.5m jobs would “not be enough for the Fed to shift,” analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”
Monica Defend, head of research at Amundi, said the fact that US and European stock markets were trading around record highs was “concerning”. The current market narrative of economic recovery and rapidly improving corporate earnings, boosted by supportive monetary policy, “has become too complacent”, she said.
The 10-year Treasury yield, which sets the tone for global borrowing costs and stock market valuations, was “inconsistent with a US economy that is recovering at such a pace”, she added.
Amundi, which is Europe’s largest fund manager, was now “taking profits on equity positions across developed markets”.
The dollar, as measured against a basket of currencies, was subdued ahead of the non-farms report, drifting 0.2 per cent lower.
Elsewhere, sterling also traded flat against the dollar, at $1.39, ahead of UK local election results and a Bank of England meeting on Thursday where policymakers could provide clues about when they plan to reduce their bond-buying programme.
The Bank of England last month became the largest buyer of UK gilts, purchasing at a pace of £4.2bn a week. Gilts have dropped in price this year, however, as traders anticipate higher inflation which erodes the returns on the fixed interest securities.
The yield on the 10-year gilt, which has climbed from around 0.17 per cent at the start of the year, ticked 0.01 percentage points lower on Thursday to 0.807 per cent.
Asian equity markets advanced on Thursday. Hong Kong’s Hang Seng index rose 0.7 per cent.
Japan’s Topix closed 1.5 per cent higher, led by energy and materials stocks riding a commodities price boom driven by Chinese demand and US spending on pandemic recovery programmes. An index of commodity prices compiled by Bloomberg is now trading at its highest level in three years.
Brent crude rose 0.5 per cent to $69.33 a barrel, continuing its advance towards the $70 watermark it has not reached since May 2019.