Traders Show Caution Before Crucial US Jobs Report: Markets Wrap

(Bloomberg) — A cautious tone dominated markets before a key US jobs report that may provide traders with further guidance on the Federal Reserve’s policy path.

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Europe’s Stoxx 600 equity index edged higher, while US futures contracts were little changed, as were the dollar and Treasuries. In corporate news, Direct Line Insurance Group Plc jumped 8.5% after an improved takeover offer from Aviva Plc.

French bonds rose, outperforming euro-area peers after National Rally leader Marine Le Pen told Bloomberg News a budget could be delivered within weeks. The CAC 40 index (^FCHI) climbed 1% in Paris, rising for a seventh day in the longest winning streak since February.

Friday’s US labor market figures will have a big say over whether the S&P 500 can build on its 27% rally in 2024. The benchmark is on track for the best year since 2019 on excitement around the rapid growth in artificial intelligence and optimism President-elect Donald Trump’s policies will boost US markets.

Economists anticipate the data will show a rebound in hiring in November from the effects of recent hurricanes and a major strike. Estimates suggest 220,000 jobs were added in the final nonfarm payrolls report before the Fed’s next interest-rate decision. Swap trading showed the implied odds of a quarter-point rate cut by the Fed’s at its December meeting are a little below 70%.

“It’s typical that people move to the sidelines before payrolls data and today there is probably more uncertainty than usual,” said Michael Brown, a senior strategist at Pepperstone. “If we get a surprisingly hot number, you can expect pricing to come back more to 50-50. Given the time of the year, market volumes are lighter than usual, so you are more likely to see an outsize reaction and that’s another reason for people to sit on their hands.”

Meanwhile, Bank of America Corp. strategist Michael Hartnett said the powerful rally in US stocks as well as cryptocurrencies has left the asset classes looking frothy.

The S&P 500’s (^GSPC) price-to-book ratio has surged to 5.3 times in 2024, approaching a peak of 5.5 hit in March 2000 during the height of the technology bubble, according to data compiled by Bloomberg. BofA’s Hartnett said there’s a high risk of “overshoot” in early 2025 if the S&P 500 nears 6,666 points — about 10% above current levels.

On Bitcoin, Hartnett said that with a market capitalization of over $2 trillion, the digital asset was comparable in size to the 11th largest economy in the world. On Friday, bitcoin pulled back from a record high set above $103,000, with its slump reaching as much as 7% at one point.

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