Morning bid: Jobs test Fed relief, Apple buyback bump

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A look at the day ahead in U.S. and global markets from Mike Dolan

The strength of the U.S. labor market will give Wall Street’s interest rate relief a reality check on Friday, but Apple’s monster share buyback has buoyed the market in advance.

The world’s second biggest company by market capitalisation wowed the gallery overnight with a whopping $110 billion stock buyback program – the biggest in the iPhone maker’s history – and upped its dividend by 4% after a modest first quarter earnings beat.

The news lifted Apple shares (NASDAQ:) 6% in out-of-hours trading and helped futures extend Thursday’s near-1% index rally ahead of today’s open.

It’s also strengthened the tailwind from this week’s Federal Reserve meeting, which has calmed the Treasury market considerably by quashing creeping fears of another interest rate rise and surprising with a big taper of the Fed’s balance sheet runoff.

The upshot is that futures markets have bumped up full-year Fed easing expectations to 40 basis points on Friday – 10 bps more than was priced just before the Fed meeting. And two-year Treasury yields have fallen to three-week lows below 4.90%.

The big test of that more relaxed view now comes from the April U.S. employment report later. Private sector payroll readings for last month and jobless claims updates this week show little give yet in a still-tight labor market – even though ebbing job openings data for March added a twist.

U.S. non-farm payrolls are forecast to have risen 243,000 last month, only marginally cooler than the 303,000 added in March. The unemployment rate is expected to hold steady at 3.8%, while annual average earnings growth is seen cooling to 4.0%.

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Cooling inflation fears in the background have seen a recoil of oil prices this week, back below $80 per barrel for the first time in almost two months. And even though the United Nations’ Food and Agriculture Organization said its food price index ticked up in April, it remains 7.4% below the level a year earlier after hitting a three-year low in February.

Easier Treasury yields have taken the wind out of the dollar’s sails, however, as the currency market’s standoff with Japanese authorities over official yen support remains tense.

After two bouts of Bank of Japan intervention this week to buoy the yen from a 34-year trough at 160 per dollar, the exchange rate fell back to three-week lows below 153 on Friday.

The week’s intervention forays, which estimates suggest may have totalled up to $60 billion in dollar sales, have tended to come in relatively thin and illiquid markets.

With the world’s biggest currency trading centre in London closed for a bank holiday on Monday, there’s likely to be some trepidation among speculators who are heavily short yen going into the weekend.

Elsewhere in Asia, Hong Kong stocks continued their remarkable recovery on signs the China’s government is stepping up efforts to boost the economy.

The climbed 1.5% for a ninth consecutive day of gains – its longest winning streak since January 2018.

UBS says global hedge funds that use an equities long-short strategy are growing increasingly bullish on China, evidenced by the heavy pick-up in their purchases of Hong Kong-listed shares.

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In Europe, Norway’s crown rose after its central bank kept its key policy interest rate on hold but said a tight monetary policy stance may be needed for somewhat longer than planned.

In company news, Anglo American (JO:) jumped 3.2% after Reuters reported that Glencore (OTC:) was mulling an approach for the 107-year old miner, a move that could spark a bidding war. Glencore was down 1.8%.

European banks were also buoyant. Societe Generale (OTC:) jumped 5.5% following a lower-than-expected fall in first-quarter net income, while Credit Agricole (OTC:) climbed 3.7% after a forecast-beating 55% jump in first-quarter net profit.

Key diary items that may provide direction to U.S. markets later on Friday:

* US April employment report, ISM and S&P Global’s April U.S. service sector surveys

* New York Federal Reserve President John Williams and Chicago Fed President Austan Goolsbee speak

* Japan’s finance minister Shunichi Suzuki holds press conference on sidelines of ADB meeting in Tbilisi. Brazil president Luiz Inácio Lula da Silva meets Japan’s Prime Minister Fumio Kishida in Brasilia

* US corporate earnings: Hershey, Monster Beverage (NASDAQ:), CBRE, Cboe Global Markets (NYSE:), Trimble

(By Mike Dolan; Editing by Ros Russell; mike.dolan@thomsonreuters.com)