US markets begin month cautiously ahead of upcoming jobs data, elections

Markets started what could be a momentous month warily, with shares steady and Treasury yields near four-month highs ahead of US jobs data, with volatility in British government bonds after this week's budget adding to the sense of nervousness.

Friday's nonfarm payrolls report is in focus before Tuesday's US presidential election and the Federal Reserve's policy meeting, which concludes Thursday, is set to contribute further volatility to share markets already digesting earnings season.

Europe's broad STOXX 600 managed to find its footing on Friday, rising 0.6 per cent, though it was still set for its worst week in nearly two months. Those gains were balanced by falling Asian stocks, particularly in Japan, to leave MSCI's world share index flat. 

US markets, which fell on Thursday, should see some relief later in the day. Nasdaq futures are up 0.4 per cent thanks to a 5.3 per cent jump in Amazon after the bell.

Before then is the payrolls report at 1230 GMT. A Reuters survey of economists predicts an increase of 113,000 jobs last month, down sharply on disruptions from hurricanes and strikes by aerospace factory workers, which will also make it harder for investors to parse.

"The past three non farm payrolls moved the market quite significantly, but as this one is going to be distorted by the strikes and the hurricane I'm not sure it will have the same impact," said Yvan Mamalet, senior economist at Kleinwort Hambros.

"For me the labour market is softening but we are not in a recessionary environment, so I think the Fed will cut rates but it's more of a normalisation than to prevent a recession."

Markets are currently near fully pricing a quarter-point rate cut next week, though have firmly given up on a larger move they had once seen as possible on data showing the US economy remains healthy.

Beyond that, things depend in part on the outcome of Tuesday's election. Polls point to a knife-edge race, though investors have been putting on trades betting Republican candidate Donald Trump could be president again

"The election has been definitely driving the market this week, and, with the state of the US economy, probably explains why bond yields have been going up in the US," said Mamalet.

The benchmark 10 year Treasury yield was last up 1 basis point at 4.30 per cent, just off the near four month high of 4.339 per cent touched earlier in the week. 

GILT YIELDS RISE

The week's biggest moves in government bond markets have been in Britain, where yields on government bonds, known as gilts, rose for a third day with the benchmark 10 year yield last at 4.496 per cent, up 26 bps on the week, which would be its biggest such move in a year.

The sell off has been driven by the new Labour government's tax-and-spend budget igniting concerns over inflation and growth, though it has failed to cause volatility on the level of 2022's budget that brought down Liz Truss as Prime Minister, perhaps a low bar.

The pound also came under pressure on Thursday, but was stronger on both the euro and dollar on Friday at $1.2914 and 84.11 pence to the common currency.

The also recently volatile Japanese yen was weakening Friday with the dollar up 0.5 per cent at 152.76 yen, having fallen 0.9 per cent on the yen a day earlier when the Bank of Japan left the door open to a year-end rate hike.

In China, private sector survey showed factory activity returned to expansion in October.

"The 50.1 level is the smallest possible expansion for the PMI but nonetheless bucks expectations for continued contraction," said Lynn Song, chief economist, Greater China, at ING.

"Moving forward we'll need to see if the stimulus rollout can lead to a recovery of domestic demand to offset potentially softer external demand picture, which could be even less favourable if we do see a Trump victory next week and a subsequent escalation of tariffs."

Oil extended its rally to a third day, with Brent prices up 2.7 per cent to $74.77 a barrel, on reports that Iran was preparing a retaliatory strike on Israel from Iraqi territory in the coming days.

Gold prices climbed 0.2 per cent to $2,750 an ounce.