Markets push higher ahead of US jobs report

• European stocks on the rise, following US AI-led gains
• Japanese growth revised lower, although earnings data helps potential hawkish BoJ shift
• US jobs report in focus, with markets hoping it supports recent shift in rate cut expectations

European stocks have followed their US counterparts higher, with yesterday’s AI-driven surge for the Nasdaq helping to improve wider sentiment ahead of today’s US jobs report. Google’s 5% gain came off the back of their impressive Gemini AI product launch, with Nvidia similarly catching a lift as markets push funds into AI-associated stocks. While growth stocks typically find themselves under pressure when lofty valuations come into question amid a wider market downturn, the recent optimism around a potential raft of 2024 rate cuts has seen the Nasdaq gain almost 14% since the late October low just six weeks ago.

This week has seen huge volatility in Japanese markets, with a repricing towards potential rate hikes yesterday driving yen strength across the board. Overnight growth data saw their third-quarter GDP figure revised down from -0.5% to -0.7%, highlighting the questionable effects of the ongoing loose monetary policy as things stand. However, a surprise jump in Japanese cash earnings (1.5% from 0.6%) helped lift the inflation outlook, supporting the view that we could see the BoJ lift rates as inflation expectations and wages rise.

Looking ahead, the US jobs report brings potential volatility for global markets, with traders on the lookout for any signs that the economy is on the turn under the weight of higher rates. The payrolls figure plays a particularly important role today, as we look out for signs on whether last month’s disappointing 150k payrolls figure represents a new norm or simply a one-off. The recent declines in JOLT job openings and rising unemployment claims signal a potential pick-up in unemployment that thus far has yet to occur. Will we finally see unemployment hit 4% for the first time since early 2022? With markets pricing a 64% chance that we will see the Fed cut rates by at least 125-basis points next year, bulls will hope to see signs of economic weakness and further wage disinflation to bolster expectations of a swift return to easing next year.