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U.S. equity futures extended declines Friday, while Treasury yields rose to the highest levels in a month and the dollar added to gains against its global peers, as investors continue to reprice the chances of near-term interest-rate cuts from the Federal Reserve while bracing for a key December jobs report.
Faster inflation figures from Europe, alongside stronger-than-expected jobs data from the U.S. this week, have set the table for an upside surprise from the Labor Department’s nonfarm-payrolls report, which is expected at 8:30 a.m. U.S. Eastern time.
The figures have also triggered the biggest Treasury bond market selloff since October, which has lifted benchmark 10-year-note yields more than 18 basis points this week to 4.045% in early New York trading.
Benchmark 2-year notes, meanwhile, were pegged at 4.429%. And the U.S. dollar index, which tracks the greenback against a basket of its global peers, added to this week’s gains – the strongest since May – with a 0.25% rise to change hands at 102.738.
The Treasury market repricing has also reduced bets that the Federal Reserve will cut interest rates this spring. The odds of a March reduction have fallen to around 60% from a 74% chance at the end of last year.
Focus now turns to today’s jobs report, which is expected to show a net gain of 175,000 new hires, with wage growth moderating to an annual rate of 3.9% and the headline unemployment rate rising to 3.8%.
A firmer overall tally, however, would add to evidence that the job market could still stoke inflation pressures into the early months of this year and accelerate bond and stock market losses, which have been tied to Fed rate cuts.
The S&P 500, in fact, has retreated around 1.7% so far this week, taking the broadest benchmark of U.S. shares back to levels last seen prior to the Fed’s December policy meeting.
Heading into the start of the trading day, futures contracts tied to the S&P 500 are priced for an 11 point opening-bell decline while those linked to the Dow Jones Industrial Average are indicating a 60 point pullback.
The tech focused Nasdaq, which has led decliners this year with a 3.3% slump thanks to big downside moves for mega-cap tech stocks, is set to open 60 points lower.
In Europe, where inflation was estimated to have surged to 2.9% in December, stocks are weaker in early Frankfurt trading. The Stoxx 600 was down 0.9% as traders pared bets on a near-term move on rates from the European Central Bank.
Overnight in Asia, stocks followed Wall Street lower, with the regionwide MSCI ex-Japan index falling 0.45% into the close of trading. Japan’s Nikkei 225 gained 0.27% as traders bet the New Year’s Day earthquake would likely delay any plans by the Bank of Japan to alter its ultraloose monetary stance.
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