European equity markets traded broadly steady on Friday following declines earlier in the week, as comments from Federal Reserve officials reduced expectations for an interest rate increase at the central bank’s September meeting ahead of the latest U.S. employment report.
The pan-European STOXX 600 remained close to its lowest level in more than a month and was on course to record its largest weekly percentage decline since early July.
Germany’s DAX was broadly unchanged, while France’s CAC 40 fell 0.3% and London’s FTSE 100 declined 0.2%.
European markets have faced higher government bond yields and energy prices during the week. Germany’s 10-year Bund yield reached 3.37%, its highest level since 2011, while the two-year Schatz yield approached 2.98%.
Oil Prices Rise Amid Strait of Hormuz Disruption
Oil prices remained elevated following disruption to commercial shipping through the Strait of Hormuz amid exchanges between the U.S. and Iran.
Brent crude traded near six-week highs and was on course for a weekly increase of around 7%.
Higher energy prices have added to inflation considerations for investors assessing the outlook for monetary policy and European companies exposed to energy and transportation costs.
Waller Comments Affect September Rate Expectations
Federal Reserve Governor Christopher Waller said recent economic data had provided signs of easing inflationary pressures. He indicated that if forthcoming reports confirm that trend, he would favour leaving interest rates unchanged at the Fed’s September 15-16 policy meeting.
His comments followed remarks from New York Fed President John Williams, who called for a cautious “wait-and-see” approach to monetary policy.
Financial futures subsequently reduced the implied probability of a 25-basis-point interest rate increase in September to around 50%, compared with almost 65% previously.
Government bond yields subsequently moved back from their recent highs, while Asian equity markets advanced overnight.
U.S. Employment Report in Focus
Investors are awaiting the U.S. nonfarm payrolls report for further information on labour-market conditions ahead of next week’s Consumer Price Index release.
A softer employment reading could support expectations that the Federal Reserve will leave rates unchanged in September. A stronger-than-expected report could increase expectations for further monetary tightening by the Federal Open Market Committee.
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