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Bond markets shine as shares recover from China's sell-off

The world stock market was mostly higher on Friday as the Federal Reserve made dovish remarks and an auction of Japanese 30-year bonds went smoothly. This helped to calm recent fears in the government bond markets.

Chinese bourses fell overnight, on reports Beijing was trying to cool down a red hot stocks rally.

FTSEurofirst's 300 index ticked higher by 0.4%, while S&P 500 futures and Nasdaq futures grew by 0.1%. This was due to a easing of concerns about the rising cost of long-term borrowing in countries like France, Britain and America.

The oil prices continued to fall after a report that OPEC+ officials were looking to increase output targets at the weekend. Meanwhile, the dollar was slipping ahead of Friday's important jobs report.

The increase in jobless claims was a welcome appetiser, but traders were happy to keep the powder dry.

In recent days, several key Federal Reserve officials have raised expectations for an imminent U.S. interest rate cut. The money markets now price in a near-100% probability that one will be announced at the Fed meeting in less than two weeks.

Derek Halpenny, head of global markets research at MUFG, said: "The markets are now a bit more convinced that the Fed will cut rates this month. This has led to a modest decline in bond yields."

He said that the Chinese equity market drop had affected the Australian and New Zealand dollars in FX markets a little, but it was mostly a matter of "consolidate" and "wait" for Friday's employment numbers.

The German 30-year bond rate fell to 3.3% as European bond buyers pushed it down. France's bond yield was down slightly more, at 4.40%. It had hit 4.523% Tuesday, its highest level since June 2009. This was due to fears that the government might collapse again.

SALEFORCE SHARES SLUMP

Salesforce's shares fell by nearly 7% in the hours before market opening after Wall Street analysts were disappointed with its third-quarter revenue due to the slow monetization rate of AI-powered product.

The AI euphoria that has driven U.S. stock indexes up to record highs has subsided since Nvidia's and other companies' numbers have failed to impress investors.

China was the focus of overnight action following a report stating that regulators are preparing measures to cool equity markets.

Beijing bluechips dropped as much as 2,6%. The tech-heavy STAR 50, which soared almost 30% last month fell more than 6% on its worst day since the beginning of April.

Wall Street futures pointed to a smooth restart. The next payrolls will not be until Friday but traders can listen to the hearing for Stephen Miran. He is Donald Trump's choice to replace Adriana Kugler, who resigned from the Fed board.

Jim Reid, Global Head of Macro Research at Deutsche Bank, said that it would be interesting to see senators question Miran about his views on Fed Independence, especially since Trump has tried to fire Fed official Lisa Cook, and has criticised Fed Chairman Jerome Powell repeatedly.

Miran stated in his testimony, posted on the Senate Banking Committee website Wednesday, that he intended "to preserve" this independence.

The auction of Japanese 30-year bonds that took place in Tokyo over night was a success, despite the concerns about Fed independence.

The Nikkei ended the day 1.5% higher, after recovering from its biggest one-day drop since April.

India's benchmark Sensex index rose by as much as 1% when markets reopened following the government's decision to lower taxes on several items in an effort to boost consumption and counter U.S. Tariffs.

The Federal Reserve's "Beige Book", released on Wednesday, painted a mixed image of the U.S. economic situation. This appeared to confirm monetary policymakers concerns. Analysts from ING described it as "bleak", and warned that it was "littered" with warnings regarding the inflationary effects of import tariffs.

In early U.S. trade, the yield on 10-year Treasury bills dipped to 4.18%. The 2-year yield was at its lowest since May.

The dollar rose 0.2% to 148.45 yen, staying within the range of trading it has been in since August began.

The dollar was slightly higher at $1.1650 against the euro. Brent crude fell another 1.4%, to below $67 per barrel. Gold also slipped 0.5% back after reaching a record high on Wednesday of 3,578.5 ounces. (Editing by Kevin Liffey).

(source: Reuters)