LONDON (AP) — Stock markets in Europe took a breather Thursday as investors awaited a key U.S. jobs report, while the euro remained supported by mounting expectations that the European Central Bank will raise interest rates next week to combat above–target inflation levels.
Having focused on Japan's devastating earthquake and tsunami as well as the uprisings in the Arab world over the past few weeks, traders are turning their attention to fundamental economic indicators, such as the pace of jobs creation in the U.S.
Figures from the ADP payrolls firm Wednesday shored up hopes that Friday's nonfarm payrolls data for March will come in strong and that helped stock markets around the world post solid gains.
The payrolls figures often set the stock market tone for a week or two after their release. They could have an even bigger impact this time as investors gauge when the Fed will begin tightening monetary policy.
Recent comments from Fed officials have indicated that interest rates may rise sooner than the markets had previously been anticipating. That has been reflected in the recent subdued performance in U.S. Treasuries.
At the moment the consensus in the markets is that payrolls rose by 190,000 during March but that the unemployment rate, which is based on a separate survey, was unchanged at 8.9 percent.
Trading Thursday is also complicated by the quarter's end when many investors often book profits accumulated over the previous three month period. As a result, markets may trade in a volatile fashion all day.
In Europe, the FTSE 100 index of leading British shares was flat at 5,948 while Germany's DAX was more or less unchanged at 7,055. The CAC–4o in France was 0.4 percent lower at 4,1010.
Wall Street was also poised for a fairly subdued opening — Dow futures were up 17 points at 12,302 while the broader Standard & Poor's 500 futures rose less a point to 1,325.
In the currency markets, interest rate issues continued to dominate trading, at least with regard to the so–called majors.
The prospect of higher interest rates is a boon to the euro despite ongoing worries about the financial health of a number of countries, notably Ireland and Portugal.
Of particular interest later Thursday will be the publication of stress tests results into four Irish banks.
"Although a mainly European based story, Wall Street will watch closely as any calls for more capital will likely leave many of the major banks facing more bills," said James Hughes (News - Alert), senior market analyst at Alpari UK.
Despite continuing fears about Ireland's banking system, the euro remains buoyant, benefiting from expectations the ECB will raise interest rates a week from Thursday.
Figures earlier from Eurostat, the EU's statistics office, showed that consumer prices in the 17–country eurozone rose by 2.6 percent in the year to March, way above the ECB's target of keeping inflation at "close to but below 2 percent." March's rate was the highest since October 2008 and has more or less rubber–stamped an interest rate increase from the bank next week.
Over the past month, comments from the ECB have been increasingly hawkish on inflation. The bank's rate–setters, including the president Jean–Claude Trichet, have been giving heavy hints that the main interest rate will rise from the current record low of 1 percent at the next meeting on April 7.
Earlier in Asia, stocks rallied in the slipstream of the previous day's gains in Europe and the U.S.
Tokyo's Nikkei 225 index rose 0.5 percent to 9,755.10, its highest close since March 11, when a massive earthquake and tsunami devastated Japan's industrial northeast and took down a nuclear plant that has leaked toxic radiation ever since.
Hong Kong's Hang Seng added 0.3 percent to 23,527.52 while South Korea's Kospi rose 0.2 percent to 2,096.30.
However, mainland China's Shanghai Composite fell 0.9 percent to 2,928.11 in anticipation of further rate hikes by China's central bank. Beijing has been using a series of repeated, gradual hikes in interest rates and reserve levels to stanch a flood of lending that helped China rebound quickly from the global crisis but now is fueling pressure for prices to rise.
In the oil markets, the focus remained very much on Libya amid signs that forces loyal to Moammar Gadhafi are gaining ground. Their capture of another major eastern city has nearly reversed the gains rebels made since international airstrikes began over a week ago.
The uncertainty kept oil prices elevated — Libya accounts for a little under 2 percent of global oil production.
A barrel of crude on the New York Mercantile Exchange was up 91 cents at $105.18 while the equivalent Brent rate in London rose $1.06 to $116.01.
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Pamela Sampson in Bangkok contributed to this report.
