LONDON - European markets brushed aside earlier losses in Asia to trade sharply higher Friday ahead of a key U.S. jobs report that may determine how fast the Federal Reserve reduces its monetary stimulus.
The nonfarm payrolls data for
December, due an hour before Wall Street's open, have the potential to alter
market expectations for the pace of the monetary withdrawal. The consensus in
the markets is that U.S. employers added 196,000 jobs last month and that the
unemployment rate remained at 7 percent.
At its December policy meeting, the
Fed decided to reduce its financial asset purchases by $10 billion to $75
billion from this month partly because of sustained improvements in the U.S.
labor market. Unlike many other central banks around the world, employment
levels are a key component of the Fed's mandate.
"A good payrolls number will
shift the markets attention to the Fed meeting at the end of this month and the
potential for a further $10 billion of tapering," said Michael Hewson,
senior market analyst at CMC Markets.
Analysts said it will be interesting
to see how the markets react to the figures. For much of last year, investor
sentiment was heavily dependent on tapering expectations. Many traders feared
the prospect as much of the rally in global stocks over the past few years has
been driven by the new money created by the Fed's policy. When tapering was
officially launched, the response was negligible, partly because investors have
accepted that it's due to an improvement in U.S. economic fundamentals - more
growth is a recipe for share price gains.
Ahead of the figures, European markets
were solid. Germany's DAX was up 0.8 percent to 9,499 while the CAC-40 in
France rose 0.6 percent to 4,252. The FTSE 100 index of leading British shares
was 0.9 percent higher at 6,749.
Wall Street was poised for a solid
opening, with both Dow futures and the broader S&P 500 futures up 0.3
The gains in Europe and the
anticipated advance in the U.S. come despite a more downbeat trading session in
Asia, when investors were spooked by a report showing a slowdown in China's
Japan's Nikkei closed with a slight
gain of 0.2 percent to 15,912.06 while Hong Kong's Hang Seng rose by 0.3
percent to 22,846.25. South Korea's Kospi dropped 0.4 percent to 1,938.54 and
the Shanghai Composite Index shed 0.7 percent to 2,103.30. India's Sensex rose
by 0.3 percent to 20,783.99.
In other markets, the focus was also
on the payrolls numbers and trading was subdued. Among currencies, the euro was
down 0.1 percent at $1.3594 while the dollar rose 0.1 percent to 104.97 yen. In
the oil markets, a barrel of benchmark crude was 94 cents at $92.60.