European shares fall, oil recovers, traders await US jobs data

LONDON, Aug 5 (Reuters) – European shares fell slightly on Friday but were still set for a weekly gain, as traders awaited U.S. jobs data later in the session to provide clues about the health of the world’s largest economy.

The MSCI world stock index, which tracks stocks in 47 countries, was up 0.2% and on course for a weekly gain of 0.7% ̵[ads1]2; marking its third straight week of gains (.MIWD00000PUS).

Asian shares rose overnight, but by 0823 GMT the STOXX 600 was down 0.1% (.STOXX), France’s CAC 40 (.FCHI) and Germany’s DAX (.GDAXI) were flat. London’s FTSE 100 was down 0.2% (.FTSE).

Central banks around the world have raised interest rates in a bid to curb rising inflation, but European shares have rallied to near two-month highs this week.

“Equity futures have become comfortable with the idea that rate hikes by central banks will be sufficient to contain inflation over the longer term,” said Kiran Ganesh, multi-asset strategist at UBS.

But other asset classes reflect a decline.

The closely watched portion of the U.S. yield curve that measures the gap between yields on two- and 10-year Treasuries hit 39.2 basis points on Thursday, the deepest inversion since 2000.

An inverted yield curve is often seen as an indicator of a future recession.

Oil rose, picking up after the previous session saw prices reach their lowest levels since February. Concerns about supply shortages were enough to offset fears of weakened fuel demand. read more

Global crude oil markets held steady in decline, with immediate prices higher than in future months, indicating tight supplies.

Investors will look to US jobs data to see if the US Federal Reserve’s aggressive pace of rate hikes is starting to slow economic growth.

The data is expected to show that non-farm payrolls had increased by 250,000 jobs last month, after increasing by 372,000 in June.

“So far, markets have reacted to stronger economic data as good news. But at some point they may question whether the Fed’s tightening is having the desired effect if the economy remains strong,” ING economists wrote in a note to clients.

“At that stage they may start to worry that prices may go higher, or stay higher for longer.”

UBS’s Ganesh said a non-farm payrolls number in the 200,000 to 300,000 range would be consistent with a “soft landing” for the economy, while a higher figure suggested the Fed needed to raise interest rates more to curb demand.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits had increased last week, suggesting that a weakening in the labor market may already be underway. read more

Cleveland Fed President Loretta Mester struck a hawkish tone on Thursday, saying the Fed should raise interest rates above 4% to bring inflation back down to target. read more

The US dollar index was up around 0.2% and the euro was down 0.2% at $1.02265. The Australian dollar, seen as a floating proxy for risk appetite, fell 0.1% to $0.6958. read more

The British pound fell 0.1% to $1.215.

The Bank of England raised interest rates by the most in 27 years on Thursday and warned that a long recession was on the way. read more

European government bond yields were broadly 1 to 2 basis points higher, with the German 10-year yield at 0.812%.

German industrial production had an unexpected but modest increase in June, official data showed.

Reporting by Elizabeth Howcroft; Editing by Bradley Perrett

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