World stocks teetered on their first weekly loss since October as a rally fuelled by hopes of the U.S. Federal Reserve and the European Central Bank cutting interest rates paused ahead of key U.S. jobs data.
MSCI's broad gauge of world stocks traded flat, heading for a 0.1% weekly loss after five weeks of gains.
Caution also crept into government debt markets on Friday, with the 10-year Treasury yield rising 5 basis points (bps) to 4.1797%. Germany's equivalent Bund yield added 5 bps to 2.24%.
U.S. non-farm payrolls figures due later on Friday are expected to show employers added 180,000 jobs last month. An upside surprise could drive traders to scale back predictions for more than 125 basis points of Fed rate cuts next year, analysts warned.
"If the Fed is going to cut aggressively, it will be due to a recession and a notable drop in inflation led by unemployment. The numbers game of NFP (non-farm payrolls) suggests we are still far from those levels," said BNY Mellon's head of markets strategy and insights, Bob Savage.
Futures indicated the U.S. S&P 500 would flatline in early New York trading.
Europe's Stoxx 600 share index was 0.6% higher on Friday however, set for its fourth straight week of increases, as risk appetite remained high following a sharp slowdown in inflation in the bloc.
COMPLACENCY
Global markets are anticipating rate cuts by central banks as soon as March next year even though economic forecasters do not expect significant recessions in the United States or the euro zone.
The S&P 500 has risen more than 9% since early November. The 10-year Treasury yield which moves inversely to the price of the benchmark debt and tracks expectations for long-term borrowing costs, has dropped from more than 5% in late October.
"There's so much complacency in the market right now," said Olivier Marciot, cross-asset portfolio manager at fund manager Unigestion. "You can't have a consensus calling for a soft landing and, at the same time, investors pricing in major cuts."
The VIX, a measure of implied volatility on the S&P 500 that reflects investor anxiety about stock market corrections, is trading at 13.1, almost its lowest since before the COVID-19 shock of early 2020.
YEN SURGE
Japan's yen, meanwhile, was on track for a fourth weekly gain on Friday as traders speculated the ultra-dovish Bank of Japan was moving closer to tightening monetary policy.
The yen, last at 144.28 per dollar following a rebound from a near 30-year low last month, was on track for a 1.72% rise this week after also gaining a similar amount the week before.
"The direction is not a surprise," said State Street's Tokyo branch manager Bart Wakabayashi. "But this move and the speed of this move have blown away my expectations."
The Japanese currency gained more than 2% on Thursday after BOJ Governor Kazuo Ueda forecast an "even more challenging" year ahead, which traders took as a sign the BOJ could end its negative interest rate policy as early as January.
The BOJ will next set monetary policy on Dec. 19.
Tokyo's Nikkei ended Friday down 1.7% for a weekly drop of 3.4%, with exporters such as automakers hardest hit.
The dollar index was set to end the week 0.5% higher at 103.7, thanks largely to euro weakness. The common currency has fallen 0.9% this week and was last at $1.079.
Brent crude, which touched a six-month low on Thursday on worries of sluggish demand, recovered slightly to $75.63 a barrel, but still on track for a 4.% fall this week.
Gold, having touched a record high early in the week before recoiling, was flat on the day at $2,030 an ounce.
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