Global stocks head for strongest weekly gain in two months as cooling US jobs data lifts sentiment

Global equity markets were on track for their strongest weekly performance in two months on Friday as signs of a cooling US labour market eased expectations of an imminent interest rate hike by the Federal Reserve, boosting investor appetite for risk assets while supporting gold prices.

European markets led the advance, with the STOXX 600 climbing 0.6 per cent to another record high and heading for a weekly gain of 2.6 per cent, its best performance since mid-May. MSCI's broadest index of global equities also rose 0.4 per cent and was set to finish the week about 2 per cent higher.

Market sentiment improved after US data released on Thursday showed June job growth slowed sharply, while payroll figures for the previous two months were revised lower, reinforcing expectations that the Federal Reserve could delay further policy tightening.

Fed funds futures indicated a 46.8 per cent probability that policymakers would leave interest rates unchanged at the September 15-16 meeting, up from 35.8 per cent a day earlier, according to CME Group's FedWatch Tool.

The shift in rate expectations helped push gold more than 1 per cent higher to above $4,160 an ounce, putting the precious metal on course for its first weekly gain since the end of May. The US dollar also retreated after reaching a more than one-year high against a basket of major currencies earlier in the week. The euro edged up 0.1 per cent to $1.144, while sterling held steady at $1.335.

Asian markets also strengthened, driven by a rebound in semiconductor shares. South Korea's KOSPI surged about 6 per cent, while Japan's Nikkei gained 1.5 per cent. Fresh Purchasing Managers' Index (PMI) data pointed to continued resilience across the region, with Japan's services sector returning to growth in June and China's services activity continuing to expand despite moderating slightly. Analysts at Capital Economics said the Chinese PMI figures continued to indicate solid economic momentum through the second quarter.

David Morrison, senior market strategist at Trade Nation, said European equities had regained favour because they traded at significantly lower price-to-earnings multiples than US stocks and were less exposed to the artificial intelligence-driven rally that has dominated Wall Street.

Despite the positive market mood, analysts continued to warn that inflation risks remained. James Rossiter, head of global economics at TD Securities, said shipping disruptions linked to the closure of the Strait of Hormuz had reduced global shipping capacity, with the resulting cost pressures still expected to feed through the global economy.

US equity futures also pointed higher, with S&P 500 futures rising 0.3 per cent and Nasdaq futures adding 1.2 per cent ahead of the Independence Day market holiday. Meanwhile, the dollar traded around 161 yen after the Japanese currency touched its weakest level in four decades earlier this week, with investors remaining alert for possible intervention by Japanese authorities.