A Look at the Day Ahead in European and Global Markets

By Stella Qiu

Asian markets began what is expected to be a significant month on a cautious note, with investors avoiding risk assets ahead of Friday's U.S. jobs data and next week's presidential election.

Most Asian shares declined, led by a 2.3% drop in the Nikkei. However, Chinese stocks performed better, with Hong Kong's Hang Seng index rising 1.6% after a private survey indicated that China’s vast manufacturing sector returned to expansion in October.

The Caixin/S&P Global manufacturing PMI for China reinforced positive findings from an official survey the previous day, suggesting that the slowdown in the world’s second-largest economy may have reached its lowest point, bolstered by a series of government stimulus measures aimed at boosting growth.

Oil prices extended their rally into a third day, rising by almost 2% on Friday following reports of Iran preparing a retaliatory strike on Israel from Iraq in the coming days.

The dollar regained some losses against the yen, but overall, currencies remained range-bound.

Looking ahead to Europe, investors found reassurance in an earnings beat by Amazon (NASDAQ:AMZN), which surged 5.3% after earnings reports, adding $104 billion to its market cap. Both EUROSTOXX 50 futures and FTSE futures inched up 0.1%.

Investors are closely watching whether UK gilts will continue their sell-off and if the pound will breach its 200-day moving average as markets evaluate Chancellor Rachel Reeves' first budget. Analysts are concerned that the spending-heavy budget could increase inflationary pressures, prompting bets that the Bank of England may need to slow future rate cuts. Two-year gilt yields surged 27 basis points this week to the highest level since May, although still modest compared to the 89-basis-point surge following Liz Truss' 2022 budget.

In the U.S., earnings reports from Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are anticipated, alongside the pivotal ISM manufacturing survey and the non-farm payrolls report. Hurricanes and strikes have complicated the interpretation of job data. Projections indicate a rise of 113,000 new jobs in October, but a solid ADP report and declining jobless claims suggest upside risks.

The unemployment rate is expected to remain at 4.1%, so barring any significant surprises, markets are likely to maintain expectations that the Federal Reserve will cut rates by a quarter-point next Wednesday, which is over 94% priced in.

Additionally, before that, the U.S. presidential election takes place, with candidates Donald Trump and Kamala Harris in a tight race, leading some investors to trade based on expectations that a Trump victory could lead to inflationary policies.

Key Developments That Could Influence Markets on Friday:

• UK manufacturing PMI
• U.S. non-farm payrolls
• ISM Manufacturing survey
• Exxon Mobil, Chevron earnings

(Editing by Edmund Klamann)