Morning Bid: Global risk rally hinges on payrolls

A look at the day ahead in European and global markets from Rae Wee

Closely watched U.S. nonfarm payrolls data on Friday marks the final piece in an eventful week that's been nothing short of a boon for the global rate cut rally. The durability of that optimism depends on whether those jobs figures affirm the case for a Fed rate cut or not.

Expectations are for the world's largest economy to have added 185,000 jobs last month - slightly more than April's 175,000, which was the smallest gain in half a year.

With a slew of economic data this week pointing to an easing of labour market conditions, that puts even more emphasis on Friday's numbers to reinforce that narrative. So any upside surprise could deliver a nasty shock to markets.

Investors have already been adding to bets the Fed could ease rates in September, following similar moves by the European Central Bank and Bank of Canada this week.

World stocks have rallied, bond yields compressed and the dollar was headed for a weekly loss.

The two-year U.S. Treasury yield ticked slightly higher on Friday, having fallen for six straight days in the previous session.

That's the longest uninterrupted decline going back to late last year, according to Tradeweb data, or back to March 2020, according to Reuters/Refinitiv indicative pricing.

LEFT OUT

China, however, was an outlier to the global rally.

Risk sentiment in the world's second-largest economy turned sour after a group of U.S. lawmakers said leading Chinese battery companies with ties to Ford Motor and Volkswagen should be banned from shipping goods to the U.S., the Wall Street Journal reported.

Chinese blue-chips fell 0.7%, while Hong Kong's Hang Seng Tech index tumbled 1.4%.

The negative headlines overshadowed domestic data which showed China's exports grew more quickly and for a second month in May, providing some relief to the economy as it seeks a durable recovery amid a protracted property crisis.

Key developments that could influence markets on Friday:

- Germany industrial output (April)

- Germany imports, exports data (April)

- Euro zone revised GDP (Q1)

- U.S. nonfarm payrolls (May)

(Editing by Sam Holmes)