10th Jan 2025 06:53
(Alliance News) - Stocks in London are set to open slightly lower on Friday, giving back a fraction of its gain from Thursday, as UK bond yields and the prospect of higher for longer US interest rates keep a lid on enthusiasm.
IG says futures indicate the FTSE 100 to open just 1.9 points lower at 8,317.79 on Friday. The index of London large-caps ended up 68.66 points, 0.8%, at 8,319.69 on Thursday.
The pound fell to USD1.2279 early Friday, from USD1.2304 around the time of the London equities close on Thursday. The euro fell to USD1.0284 from USD1.0295. Versus the yen, the dollar was higher at JPY158.36 from JPY157.96.
A barrel of Brent fetched USD77.00, down from USD77.11. Gold climbed to USD2,675.32 an ounce from USD2,667.81.
Rachel Reeves faces further pressure to balance the books as the UK's borrowing costs hit their highest level since the 2008 financial crisis.
The chancellor is said to be prepared to impose more severe spending cuts on departments if necessary, having already ruled out increasing either borrowing or taxes.
Yields on government bonds continued to rise on Thursday, up eight basis points to 4.89% for 10-year gilts, which is the highest since 2008.
These yields settled later on Thursday afternoon, sitting one basis point higher for the day at 4.82% when London's market closed.
Shadow Chancellor Mel Stride said Reeves was "missing in action" and accused her of "wheeling out her deputy to defend her loss of control of the public finances" as Treasury Chief Secretary Darren Jones answered questions in the Commons in her place.
Jones said the trip was "important" for UK trade and would continue.
While Stride said the government was making "a panicked attempt to reassure the markets", Jones insisted that the bond market was functioning in an "orderly way".
Jones also pointed to global factors influencing the gilt market, saying there was "no need for emergency intervention".
The highlight of the day will be the latest set of US nonfarm payrolls at 1330 GMT. According to FXStreet cited consensus, the pace of US hiring is expected to have eased to 160,000 jobs in December, from 227,000 in November.
"If this trend is confirmed, 2024 would solidify its position as the year with the lowest job creation in the US since 2019, excluding the atypical period of 2020," Pepperstone analyst Quasar Elizundia commented.
"While a slowdown in job creation could be interpreted as a sign of labour market weakening, it is important to note that a pace exceeding 150,000 new jobs per month still reflects a robust economy. Moreover, this data follows a series of positive indicators released throughout the week, contributing to the narrative of delayed expectations for a more aggressive normalization by the Federal Reserve in 2025.
"Should the NFP exceed expectations, it will likely strengthen the narrative of a reduced need for additional cuts by the Fed. This scenario would probably bolster the US dollar, potentially pressuring equity markets, especially if there is a rise in Treasury yields."
The US Federal Reserve should proceed cautiously before supporting any future rate cuts, a senior bank official said Thursday, adding that she saw December's rate cut as a final step for now.
The US central bank voted 11-to-1 in favour of cutting rates by a quarter of a percentage point at the meeting on December 17 and 18, reducing the bank's key lending rate to between 4.25 and 4.50% despite an uptick in inflation.
Speaking in California on Thursday, Fed Governor Michelle Bowman said she had backed another rate cut but could have been persuaded against it.
"I supported the December policy action because, in my view, it represented the Committee's final step in the policy recalibration phase," she said.
Speaking in Missouri at around the same time as Bowman, Kansas City Fed President Jeff Schmid sounded a similar note of caution about future rate cuts.
"My read is that interest rates might be very close to their longer-run level now," he said. "Regardless, I am in favour of adjusting policy gradually going forward and only in response to a sustained change in the tone of the data."
"The strength of the economy allows us to be patient," added Schmid, who has a vote on the Fed's rate-setting committee this year.
Equity markets in New York were closed Thursday for a day of mourning following the death of Jimmy Carter. US equity market futures are currently negative.
Friday's UK corporate calendar has a trading statement from grocer J Sainsbury.
In China on Friday, the Shanghai Composite was down 0.7% in afternoon dealings. The Hang Seng Index was 0.8% lower. In Tokyo, the Nikkei 225 lost 0.9%, while the S&P/ASX 200 in Sydney shed 0.4%.
By Eric Cunha, Alliance News news editor
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