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Stocks reach record highs ahead of US payrolls; UK bonds remain steady

The dollar strengthened on Thursday, ahead of important U.S. employment data. In Europe, the bond markets in Britain were stable after a previous sell-off triggered by debt concerns.

The bulls got a boost overnight from a deal reached between the United States, and Vietnam before the deadline for all U.S. tariffs to be implemented next week. This follows frantic trading in recent weeks.

The pan-European STOXX 600 Index advanced 0.4%. MSCI's 47-country main world share gauge is now at its seventh all-time high in eight sessions, and the dollar is close to ending a 4-day slide.

The bonds of Britain recovered some of the heavy losses they suffered a day before due to uncertainty about Finance Minister Rachel Reeves future. However, they remain weaker than their recent levels.

The 20-year bond yield, which is an indicator of UK government borrowing costs over a longer period, has eased by eight basis points since its highest spike on Wednesday in October 2022, during Liz Truss' ill-fated tenure as premier.

The UK Finance Minister Rachel Reeves' tearful appearance in parliament has sparked doubt about her future, and Britain's finances. After the government was forced into abandoning billions of pounds of welfare spending reductions, it is unclear what will happen to Reeves.

Susannah Streeter is the head of money markets and financial services at Hargreaves Lansdown.

The focus was also on the U.S. Payrolls Report, which will guide ongoing debates on whether and when the Federal Reserve cuts U.S. Interest Rates.

Analysts predict a rise in jobs of 110.000 in June, with the unemployment rate rising to 4,3%. But the stakes are high following a surprise drop in the private sector payrolls in the past two years.

The traders were also watching to see if the tax and spending bill of U.S. president Donald Trump was passed by Congress within the next 24 hour. According to analysts, the bill will add $3.3 trillion over the next 10 years to the United States national debt of $36 trillion.

Wall Street closed Wednesday with record highs, after Trump announced the U.S. has struck a deal with Vietnam that includes a 20% tariff for exports into the U.S. This is still higher than previous tariffs, which were as high as 46%.

Vietnamese shares rose 0.5%, the most since April 2022. However, the dong currency fell to a record low at 26,229 dollars per dong.

Shane Oliver is the chief economist of AMP. He said, "More deals will be announced soon, but the tariff agreement with Vietnam (20%) does not augur very well. That or even higher could be the norm in some countries, including Europe and Japan."

In fact, Japan invoked its national interests when talks with the U.S. stalled, and South Korean President Lee Jae Myung stated on Thursday that U.S. Tariff negotiations looked difficult, but he couldn't say if they could be concluded by next Tuesday.

MSCI's broadest Asia-Pacific share index closed 0.3% higher. China's blue chip index rose 0.6% as weak services data led to expectations of further stimulus. Japan's Nikkei, meanwhile, finished flat.

In Europe, Nasdaq and S&P futures were also broadly flat.

JOBS RISK

The dollar hovered just above its three-year low versus a basket of major counterparts, up by 0.1% on the day. After a 0.8% drop on Wednesday, the pound recovered 0.2% and reached $1.3662.

The U.S. payroll figures will be a major risk factor for the markets.

The Federal Reserve's majority members have said that they can wait to cut rates until they are able to gauge the impact of tariffs in real terms on inflation.

Tony Sycamore is an analyst at IG. He said, "These labour-market indicators warn that the risk of a spike in unemployment to 4,4%, which would be the highest rate since October 2021, has increased." This would increase the likelihood of a Fed rate cut in July to 70%.

Futures indicate that the Fed is only 25% likely to cut rates this month. The Fed hasn't eased its policy in any way this year. This angered Trump, who reiterated on Wednesday his call for Jerome Powell, the Chair, to resign.

Trump has repeatedly attacked Powell since his January return to the White House for failing to lower borrowing costs. Trump said that rates should be lowered to 1%, from the current Fed benchmark rate of 4.25%-4.50%.

UBS' survey of reserve managers on Thursday revealed that two thirds believe the Fed's independence is in danger and nearly half believe the U.S. rule of law may be deteriorating to the point where it could influence their asset allocation.

The Treasuries Market was nervous before the data, as a poor jobs report could send yields sharply down. The yields on 10-year Treasury bonds fell 3 basis points, to 4.265%, and the yields on 2-year Treasury bonds dropped 2 bps, to 3.772%.

Oil prices dropped on the commodities market after a 3% increase overnight, as Iran stopped cooperating with U.N.'s nuclear watchdog.

Brent crude futures fell 0.8% to $68,64 per barrel. U.S. crude oil was down 0.7% on the day. Gold prices fell 0.1%, to $3352 per ounce. Andy Bruce contributed additional reporting; Emelia Sithole Matarise edited the article.

(source: Reuters)