European stocks advanced and bond yields eased as investors geared up for the United States nonfarm payrolls (NFP) report — the week's main event. The monthly jobs data faces a higher bar than usual after several sessions of rising tension in the bond market, and its outcome threatens to reset the calmer mood that has returned to broader markets in European morning trade.

The bond market has continued to be the main driver of price action, and on Friday yields fell back as investors awaited fresh clues from the labor market report before deciding on their next move. Yields matter well beyond the bond market: they anchor borrowing costs for companies and households and shape how investors value riskier assets such as stocks. The jobs report, in turn, is one of the most influential data points for Federal Reserve policy expectations — the very expectations that policymakers' remarks have been reshaping throughout the week.

The 10-year US Treasury yield declined 1.6 basis points to 5.22%, moving well off yesterday's high of 5.34% — a level that marked the highest since 2002. In Europe, 10-year German bund yields cooled to 3.40%, holding much lower than the high of 3.65% reached earlier this week.

The retreat in borrowing costs afforded equities some breathing room, with European stocks bouncing back and US futures building on the rebound from the previous session. Germany's DAX rose 0.9%, France's CAC 40 gained 0.5%, and S&P 500 futures were up 0.4% ahead of the open on Wall Street. Lower borrowing costs helped provide stocks with a lift, alongside softer inflation worries as oil prices also dropped on the day. The combination offered risk assets a reprieve from the pressure exerted by the week's surge in yields.

WTI crude fell 3.6% to $89.50 as traders continued to weigh the situation in the Middle East, capping a back-and-forth week for oil prices.

On the data front, euro area September inflation came in hot, with the headline figure rising to 3.8% as energy prices surged. The core estimate — which strips out volatile food and energy prices and is watched for underlying pressure — also nudged higher to 2.5% in September from 2.4% in August. Even so, the mild core acceleration is still something the European Central Bank might be able to look past for now ahead of its October decision — market pricing continues to show roughly 28% odds of a 25 basis point rate hike this month, not much changed from before the release. Separately, ECB policymaker Olli Rehn flagged risks stemming from energy prices and artificial intelligence, noting that the rate outlook remains uncertain.

In currency markets, the dollar traded mixed on the day. The Swiss franc led the major currencies while the euro lagged, with EUR/USD pushed lower to 1.1225 and USD/JPY slightly down at 157.68.

Comments from Federal Reserve officials continued to shape rate expectations after this week's events. Dovish remarks from key policymakers signaled a low appetite for further tightening, providing support for gold, which gained 0.1% to $4,180 and continues to consolidate just below the $4,200 mark. Gold pays no yield, which is part of why its fortunes track rate expectations so closely. Silver's selloff also paused as influential Fed members pushed back against bets on an October rate hike.

In cryptocurrencies, bitcoin broke out of its recent trading range after comments from the Fed's Jefferson further reduced rate hike expectations. The cryptocurrency was last up 2.2% at $86,511.

Attention now turns to the US jobs report, which will answer the question of whether the broader market relief on display will hold — or whether the bond vigilantes will return and unleash havoc before the weekend.

Source: investingLive