London: Stocks advanced on Friday amid hopes that key US jobs data will confirm that the recovery in the world’s largest economy is gathering pace. However, concerns about the political standoff in Egypt kept gains in check.
The week’s heavy load of economic news culminates later with the nonfarm payrolls report for January and there is growing expectation that it may be stronger than anticipated. The consensus in the markets is that the US economy created around 140,000 jobs during the month in total, with private payrolls alone up by 150,000.
The report is typically one of the most important economic indicators, often setting the market tone for a week or two after its release.
At the moment, investors are trying to gauge when the Federal Reserve will start tightening policy. As well as having cut interest rates to near zero percent, the Fed is currently in the middle of its second monetary stimulus program. It’s current $600 billion injection into the US economy is due to expire in June and investors are looking to see if the central bank decides to extend it beyond then.
In a speech Thursday, Fed chairman Ben Bernanke struck a fairly cautious tone, however, stressing that US economic growth has not been strong enough to bring unemployment down. Unlike other central banks like the European Central Bank, the Fed has a dual mandate to look at employment levels as well as keeping price increases in check.
“Vaguely positive tones from Bernanke over the state of the US economy --underlined by the fact there will be no quick shift away from the easy monetary policy we have at present -- has helped cheer sentiment,” said Chris Weston, research analyst at IG Markets.
In Europe, the FTSE 100 index of leading British shares was up 0.5% at 6,013 while Germany’s DAX rose 0.3% to 7,212. The CAC-40 in France was 0.4% higher at 4,052.
The US was poised for solid gains, though that could all change in the wake of the jobs figures, released before the markets open. Dow futures were up 13 points at 12,022 while the broader Standard & Poor’s 500 futures rose less than a point to 1,304.
On most days when payrolls figures are released, there’s little else to occupy traders’ attention.
Looming over markets, however, is the situation in Cairo, where protesters and regime supporters continue to skirmish amid speculation over when President Hosni Mubarak might depart. With an increased army presence in the center of Cairo and Mubarak under mounting pressure to quit, tensions remain elevated.
The turmoil in Egypt has been most evident in the oil markets, as traders worry the unrest might spread to other countries and affect the Suez Canal -- a key route for oil tankers and cargo ships as they steer from the Persian Gulf to the major oil-- consuming nations in Europe.
“The unrest in Egypt has reportedly not yet affected oil flows on the Suez-Mediterranean oil pipeline or shipping in the Suez Canal, but markets remain wary about potential disruption and the prospects of pro-democracy demonstrations moving further into oil producing mid-East countries,” said Jane Foley, an analyst at Rabobank International.
By mid morning London time, benchmark crude for March delivery on the New York Mercantile Exchange was up 21cents at $90.75 a barrel, while a barrel of Brent crude in London was 25 cents a barrel lower at $101.52.
Despite fairly sluggish trading Friday, both oil prices remain near their highest levels since 2008. That’s a concern because sky-high oil prices raise inflationary pressures in the world economy and also potentially depress economic growth -- high inflation and low growth, commonly known as stagflation, is an unappetizing brew for policymakers around the world.
Elsewhere, investors are keeping a close watch on a meeting of EU leaders Friday. Though the summit could well be overwhelmed by discussions about Egypt, there are hopes that some agreements may emerge with regard to Europe’s debt crisis amid expectations that Germany is preparing to table a grand bargain that will see it pump more cash into the eurozone’s more indebted economies in return for stricter budgetary controls.
The euro, which has been fairly buoyant of late, partly on hopes of a resolution to Europe’s debt crisis, was flat at $1.3630.
Earlier in Asia, many markets were closed for the Lunar New Year holidays, including Hong Kong, mainland China, South Korea, Malaysia, Singapore and Taiwan.
Japan’s Nikkei 225 stock average, meanwhile, rose 1% to close at 10,543.52, while Australia’s S&P/ASX 200 rose 0.9% to 4,862.70.