European stocks rose and the dollar held on to recent gains as caution swept across financial markets about the path of US monetary policy.
The continent-wide Stoxx Europe 600 rose 0.4 in morning dealings, building on five consecutive months of gains, while London’s FTSE 100 climbed 0.7 per cent.
“The outlook for US markets is complicated so it makes sense to diversify into other regions,” said Olivier Marciot, cross-asset fund manager at Unigestion. “Europe has lagged the US in terms of managing the virus and its economic recovery but it is doing better now, so it is attracting foreign capital while European investors are also looking internally.”
The dollar index, which measures the greenback against major currencies, was flat, clinging on to its strongest level since early April. Against the Japanese yen, the revitalised dollar was at a 15-month high.
Core government bonds sold off, taking the yield on the benchmark 10-year US Treasury up 0.04 percentage points to 1.48 per cent.
The moves come ahead of US manufacturing and employment data that may prompt the Federal Reserve to begin reducing its emergency stimulus spending if the readings point to the world’s largest economy accelerating out of recovery.
Investors have been on high alert for the Fed to signal a reduction of its $120bn a month of bond purchases since mid-June, when the central bank’s policymakers lifted their growth and inflation forecasts for the US and brought forward projections for the first post-pandemic rate rise by a year to 2023.
Economists polled by Reuters expect data later on Thursday to show first-time unemployment claims in the US dropped to 390,000 last week from 411,000 the previous week. Friday’s closely watched non-farm payrolls report for June is also forecast to show the nation’s employers added close to 700,000 new jobs, up from 559,000 in May.
On Thursday, the Institute for Supply Management’s purchasing managers’ index for the US manufacturing sector is expected to produce a strongly expansionary reading of 61 in June, after hitting 61.2 in May. A reading above 50 on the index, which collates executive responses to questions on topics such as new orders, separates expansion from contraction.
For the most recent quarter European stocks lagged behind US markets, with the S&P 500 climbing 8.2 per cent against a 5.4 per cent rise for the Stoxx 600.
The European Central Bank is seen by investors as likely to maintain its emergency bond purchasing programme for longer than the Fed. Eurozone inflation dipped for the first time in nine months in June, to 1.9 per cent from the same month last year. In contrast, the headline rate of US consumer price rises hit 5 per cent in the 12 months to May.
“Eurozone real GDP [gross domestic product] will be slightly outpaced by the US in 2022,” Jefferies strategist Sean Darby wrote in a research note.
“Both economies are experiencing nominal profit booms as [companies’] pricing power returns much faster than expected. However, the ECB is going to be much later in tapering and tightening than the Fed.”
Global oil marker Brent crude rose 1.2 per cent to $75.46 a barrel as an Opec + meeting started on Thursday, with analysts predicting the group of oil producers would continue to curb output increases.