European stocks and Wall Street futures rose on Friday as investors looked ahead to the publication of US jobs data for evidence of the health of the American economy.
The region-wide Stoxx Europe 600 added 0.1 per cent in morning trade and London’s FTSE 100 gained 0.3 per cent, pausing after another bout of selling shook US regional banks overnight on Wall Street and extended the industry’s worst panic since 2008.
Germany’s Dax rose 0.2 per cent even after figures showed that German factory orders fell 10.7 per cent in March from the previous month, a much bigger drop than economists had expected, raising concerns about a sharp slowdown in Europe’s biggest economy.
Alive to the threat of a recession, the European Central Bank on Thursday raised interest rates by a quarter of a percentage point, a slowdown from previous increases, but warned that the fight against inflation was not yet won. The ECB’s main deposit rate has climbed from minus 0.5 per cent to 3.25 per cent in 11 months, its fastest-ever tightening cycle.
Some analysts think rates are close to peak levels. “For all the resilience of the euro area banking sector, the US experience is calling for caution,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “We would expect the ECB to stop hiking rates by the summer.”
In the US, contracts tracking Wall Street’s benchmark S&P 500 added 0.3 per cent and those tracking the tech-heavy Nasdaq 100 rose 0.4 per cent ahead of the New York open. Traders are awaiting US employment figures that are expected to show 180,000 jobs were added in April, down from 236,000 jobs added in March. The unemployment rate is expected to have ticked up to 3.6 per cent in March from a half-century low of 3.5 per cent.
“A negative [jobs] number would mean we’re already in a recession, and neither the [Federal Reserve] nor the market is ready for that news,” said Mike Zigmont, head of trading at Harvest Volatility Management. “I don’t think a strong number will gin up too much bullishness but it’ll back the bears off for sure.”
Like the ECB, the Fed earlier this week opted for a quarter percentage point rate rise, its 10th consecutive increase in just over a year. Unlike the ECB, however, the US central bank signalled it could soon pause its monetary tightening campaign.
The Fed has continued to raise rates despite the collapse of Silicon Valley Bank, Signature and First Republic since March, and amid wider panic in the banking sector. Shares in PacWest and First Horizon tumbled on Thursday.
“Markets are caught in an unfortunate spiral, and when they’re in that kind of mode it usually means you need an additional policy response of some kind,” said Michael Metcalfe, head of macro strategy at State Street Global Markets. On the sell-off in several regional banks this week, Metcalfe said: “My assumption is this is speculative activity.”
That sentiment was echoed by Chris Turner, head of markets at ING. “There now seems to be growing scrutiny among regulators of the short selling activity in these regional bank stocks and whether any market manipulation took place,” he said.
