GLOBAL MARKETS: European Stocks Seen Mixed; Payrolls Eyed

LONDON -- European stock markets are expected to open mixed Friday, with traders wary of putting more cash on the table ahead of the U.S. nonfarm payrolls data for October, due at 1330 GMT.

Despite Wall Street's stellar performance Thursday, European markets are set to continue at a rather more sedate pace, with just modest rises forecast, said Ben Potter, research analyst at IG Markets. "Investors still don't seem convinced that we've seen the bottom of this current pullback, with volumes still subdued," he said.

The overall economic position does, however, continue to improve, with better-than-expected weekly jobless claims numbers from the U.S. Thursday increasing the likelihood that the payrolls data will impress, Potter added.

He expected London's FTSE 100 index to open nine points higher at 5135, Frankfurt's DAX index off four points at 5477, and the CAC-40 index in Paris six points higher at 3715.

The payrolls report is expected to show an easing in the number of jobs lost, with 175,000 jobs shed in October compared with 263,000 lost in September, according to economists surveyed by Dow Jones Newswires. However, traders were cautious, with any surprises likely to see traders initiate another round of profit-taking before the weekend break, Potter noted.

But Barclays Capital chief currency strategist Masafumi Yamamoto said the payrolls data could show a 150,000 decline in jobs, less than the 175,000 drop tipped in the Dow Jones poll of economists, which could boost U.S. long-term interest rates and stocks.

On Wall Street Thursday, improving signals from the labor market and rising October retail sales gave life to consumer stocks, with the Dow Jones Industrial Average closing back above 10,000.

The DJIA closed up 203.82, or 2.1%, at 10,005.96, marking its biggest point gain since July 15. After ending October on a sour note, with the index pushing below 10,000 on Oct. 26 and staying below that level since, the DJIA has now finished higher in three of the last four sessions. Meanwhile, the Standard & Poor's 500 rose 20.13, or 1.9%, to 1066.63, while the Nasdaq Composite gained 49.80, or 2.4%, to 2105.32. The Nasdaq also closed with its biggest point gain since July 15, helped by Cisco Systems posting better-than-expected earnings. In addition, chief executive John Chambers provided upbeat remarks about the outlook for technology spending, which lifted tech across the board and sent Cisco up 2.8% to 23.93.

Filings for jobless benefits declined to their lowest level in 10 months last week, ahead of the payrolls report, helping stocks broadly. Consumer firms were also helped by a 1.8% gain for retail sales in October. Although that figure came in below expectations, some retailers did post margin improvements and lifted their third-quarter guidance.

Traders and strategists mostly shrugged off the push back above 10,000 for the DJIA Thursday. While over time, a move above that level could bring more investors to stocks, the fact that the market has remained volatile and the DJIA has already failed to stay above that level several times in the past month offsets any likelihood of a follow-through move purely on the latest push into five digits.

"It's a psychological barrier and will draw in some retail investors, but it doesn't carry that much significance with people in the professional investing community," said Robert Pavlik, chief market strategist for Banyan Partners. "We're up because the economic data is showing a positive trend, and I still believe there is more growth potential."

Still, that consumer-sensitive issues were the market's leading gainers on Thursday was a point of concern amongst some traders. While employment trends have improved, Friday's report is still expected to show nearly 10% unemployment.

"The consumer in the U.S. is going to be in retrenchment, or the backpacker mentality for a long time," said Gary Flam, a portfolio manager with Bel Air Investment Advisors. "Even if they wanted to go back to spending the way they were, they can't."

In Asian trade, shares were broadly higher early Friday, taking their cue from Wall Street's strong performance overnight. Hopes that governments around the world would remain committed to stimulus measures were supporting sentiment, although there was some caution ahead of the U.S. payrolls data. Hong Kong's Hang Seng was 1.5% higher and Japan's Nikkei 225 rose 0.7%, while Korea's Kospi Composite advanced 1.3%.

"This week's rash of central bank meetings has concluded. And the takeaway message is that the major central banks have not begun to remove the extraordinary liquidity provisions," said Brown Brothers Harriman. "The key point is liquidity, which we believe is a critical driver, remains ample," which will encourage risk-seeking behavior.

Government policy on stimulus measures is set to remain in the headlines in the near term, with the Group of Twenty and APEC meetings coming up. "The timing and methods of reversing such stimulus are likely to be a focal point," said Standard Chartered analysts.

Traders were also cautious ahead of the payrolls report as recent U.S. jobs-related data have shown mixed results.

"My suggestion to clients is that, unless U.S. stocks are on a more stable path, they should sell on rallies," said David Li, trader at Daiwa Securities SMBC-Cathay in Taiwan.

In the European currency markets, exchange rates were little changed ahead of the payrolls data. At 0725 GMT, the euro was trading at $1.4875, up from $1.4871 late in New York, while the dollar was at Y90.55, down from Y90.71.

If the numbers come in as expected, the euro could shoot toward $1.50, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

But if the unemployment figure ticks up to 10%, the psychological impact of such a level could spook investors, potentially causing stock markets and higher-yielding assets, such as the euro and commodity-backed currencies, to tank, Woolfolk said. Unemployment last registered at 9.8%.

Meanwhile, spot gold was at $1091.95 per troy ounce, up 70 cents from the New York close, while in the oil market Nymex December crude oil was up 43 cents at $80.05 per barrel.

Still, Morgan Stanley said that the upside for crude was limited as supportive macroeconomic factors are beginning to fade. "The deluge of global liquidity has contributed to lifting oil prices since February... with the end of easing approaching, we envision a harder grind ahead--one where fundamentals will matter more."

Elsewhere, European bond markets opened little changed, with the December bund futures contract last seen at 120.98, down 0.03.