LONDON, March 9 (Reuters) - Global markets hit a rare lull on Thursday ahead of U.S. jobs data at the end of the week that could easily whip up cross-asset storms.
Europe's broad STOXX 600 (.STOXX) share index dipped 0.56% although there was little movement from either the dollar /FRX or in bond markets, where recessionary warnings have grown louder. /US
U.S. Federal Reserve chief Jerome Powell had stuck to his message of higher and potentially faster interest rate hikes during a hearing on Wednesday, but also said the decision would hinge on incoming data.
It means traders will be looking even more intently at U.S. payrolls data on Friday and then U.S. inflation numbers that follow on Tuesday.
Financial markets are pricing in a near 80% likelihood of a 50 basis point rate hike at the Fed's March meeting, according to the CME's Fedwatch tool, up from about 30% at the start of the week. There is also a growing expectation the U.S. central bank could push rates to 6%.
"Our core view is that 5.5% will be enough, but that they (Fed) will have to stay there longer than the market expects," Iain Cunningham, co-head of multi-asset growth and co-portfolio manager of the Ninety One Global Macro Allocation Fund, said.
"A recession in the U.S. is our central scenario," he said, adding though that the fund was still long the dollar, especially against currencies such as the Canadian dollar and Britain's pound.
The U.S. dollar index, measuring the currency's value against a basket of major peers, hovered shy of a three-month top at 105.45. However, it lost 0.7% to the Japanese yen leaving one dollar worth 136.35 yen..
Japan's lower house of parliament on Thursday approved the government's nominee Kazuo Ueda to be next central bank governor, signing off on a leadership that will be tasked with steering an exit from ultra-loose monetary policy.
The Bank of Japan is, however, expected to maintain what it dubs Yield Curve Control and uber-low rates at the last meeting of its current chief on Friday.
Ten-year government yields again hit the BOJ's policy cap of 0.5% on Thursday.
The dollar was also buoyant against the Canadian currency reaching 1.3816 Canadian dollars, the highest level since October, after a dovish Bank of Canada left its interest rates on hold on Wednesday.
China's yuan weakened toward the psychological level of 7 per dollar after the slowest annual consumer price inflation data in a year, fanning doubts about the strength of its economic recovery.
BACK TO THE 80S
Benchmark government bond markets remain the lightning rod for both interest rate expectations and the degree of pain sharp rises are likely to inflict on the global economy.
The two-year Treasury yields held close to 15-year highs at 5.056%, while the benchmark 10-year yields were up a touch at 4.011%.
Most notably, the gap between yields on shorter term two- and longer-term 10-year Treasury notes, hit at a negative 108.2 basis points. That was most extreme inversion since 1981. Inversions are seen as reliable recession indicators.
In Europe, too, the German two-year 10-year curve was at its most inverted since 1992, with 2 year German yields at post-2007 high of 3.32% and 10-year yields at 2.68%. DE10YT=RR>
The pre-payrolls caution meant both S&P 500 futures and Nasdaq futures were 0.3% in the red. The indexes also struggled on Wednesday after private payrolls beat consensus estimates and demand for home loans increased despite higher mortgage rates.
"Powell conceded that the March decision is data-dependent," Thierry Wizman, Macquarie's global FX and rates strategist, said. "The question facing us, therefore, is whether January's economic reacceleration was a blip or a trend."
Forecasts for Friday's numbers are for a modest payrolls increase of 205,000 after January's 517,000 jump led markets to reprice their monetary tightening expectations.
Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) has sagged 0.6%, after falling 1.4% the previous session. Japan's Nikkei (.N225) rose 0.6%.
Commodity prices were choppy, with Brent crude at $82.81 per barrel, U.S. crude down slightly at $76.43 a barrel. Gold was slightly higher at $1817 per ounce .
