A look at the day ahead in European and global markets from Tom Westbrook

Nine of the G10 central banks are expected to cut interest rates next year. Not Japan.

Bank of Japan Governor Kazuo Ueda's open discussion of a difficult policy year ahead and of possible paths out of negative interest rates has jolted short sellers out of the yen, afraid that the long-awaited yen rally may have begun.

The yen is up four weeks in a row for the first time since March. It steadied in Tokyo trade on Friday, perhaps since data showed the economy slowed more sharply than first thought in the third quarter, which makes the next policy steps more complicated.

Japanese government bonds have been heavily sold, tugging global yields higher. The Nikkei dropped to a one-month low.

The consequences of above-zero rates in Japan, and particularly the possibility the BOJ will be hiking while the rest of the world is cutting, could be huge since it may trigger an unwinding of carry trades and a rearrangement of the flow of Japanese capital.

The BOJ next meets on Dec. 19. Before then the ECB, Bank of England and Fed will all meet, with markets expecting rates to stay on hold. U.S. non-farm payrolls figures due later on Friday round out the week and will set the tone for the policymakers.

An upside surprise in the jobs numbers would probably generate the most turbulence in markets, since a handful of recent indicators - pointing to a cooling labour market and slowing inflation - were behind a powerful bond rally in anticipation of rate cuts.

The European calendar is fairly bare on Friday.

Elsewhere in Asia, India's central bank kept its key lending rate on hold, as expected. South Korea's National Pension Service and central bank are in talks to extend their foreign exchange swap programme, sources with direct knowledge of the matter told Reuters, and the won rose sharply.

Shares in Australian gas producer Santos rose 6% and Woodside (OTC:WOPEY) stock fell 0.5% after the companies confirmed speculation they were in preliminary merger talks.

Key developments that could influence markets on Friday:

Economics: Final German CPI, U.S. non-farm payrolls

By David Milliken

LONDON (Reuters) - Starting salaries for newly appointed employees in Britain rose at the slowest pace since March 2021 last month, according to industry data that offered some comfort to the Bank of England in its fight against inflation pressures.

The Recruitment and Employment Confederation monthly survey has pointed towards a cooling in Britain's hot hiring market for much of this year although it has been slow to translate into broader official labour force data.

The BoE is keeping a close watch on labour market trends as it fears shortages of workers and skills mismatches since Brexit and the COVID-19 pandemic will make it hard to return inflation - currently 4.6% - to its 2% target.

The BoE is expected to keep interest rates at a 15-year high next week and restate that it is not close to cutting them.

Official data showed average pay excluding bonuses grew at an annual rate of 7.7% in the third quarter of 2023, only just off a previous record high.

By contrast, the REC survey showed a marked slowdown in the growth of starting salaries and pay rates for temporary staff in November. The latter increased at the weakest pace since February 2021.

"Businesses want to plan for the year ahead, but the prospect of faltering UK economic growth means the certainty they need isn't there. This is now impacting starting salaries," said Claire Warnes, a partner at KPMG which sponsors the survey.

The BoE predicts Britain's economy will record zero growth in 2024 and other forecasting bodies are not much more optimistic.

REC said job vacancies fell last month for only the second time since February 2021 while the number of job seekers rose by the most since December 2020. Recruiters were "widely linking this to redundancies and workers concerned about their current job security", it added.

The survey was based on responses from 400 recruitment agencies collected from Nov. 9 to Nov. 24.

By Noel Randewich and Shristi Achar A

(Reuters) - The Nasdaq ended sharply higher on Thursday after Alphabet (NASDAQ:GOOGL) and Advanced Micro Devices (NASDAQ:AMD) sparked a megacap rally on fresh optimism about artificial intelligence.

Shares of Alphabet jumped 5.3% as analysts cheered the launch of the Google-parent's newest AI model, while AMD soared nearly 10% after the company estimated the potential market for its data center AI chips could reach $45 billion this year.

Other heavyweight tech-related stocks also gained, with Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META) rising over 2%, Amazon (NASDAQ:AMZN) up 1.6% and Apple (NASDAQ:AAPL) 1% higher.

The Philadelphia semiconductor index jumped 2.8%, increasing its 2023 gain to 48%, much of that fueled by bets about the future of AI.

"Today it's an AMD-Google rally. There's a contagion effect across the market. Everyone wants to get on the bandwagon," said Jay Hatfield, CEO of Infrastructure Capital Management in New York.

"We're kind of in this weird market, a tag-team market, where one day tech leads, and then the next day value and the broad market lead."

The S&P 500 has steadily climbed since the end of October on expectations the Federal Reserve has finished its campaign of interest rate hikes and that it could begin cutting rates in March.

The S&P 500 climbed 0.80% to end the session at 4,585.59 points, with 1.8 stocks in the index gaining for each one that fell.

The most traded stock in the S&P 500 was Tesla (NASDAQ:TSLA), with $25.7 billion worth of shares changing hands during the session. The shares rose 1.37%.

The Nasdaq Composite jumped 1.37% to 14,339.99 points, while Dow Jones Industrial Average rose 0.18% to 36,117.57 points.

Volume on U.S. exchanges was relatively heavy, with 11.2 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.

Traders have almost fully priced in the likelihood of the Fed keeping rates unchanged at its meeting next week.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased less than expected last week to a seasonally adjusted 220,000 for the week.

A Labor Department jobs report due on Friday could hint at how quickly the U.S. economy is softening and may sway expectations about when the Fed is likely to begin cutting rates. Non-farm payrolls are expected to have increased by 180,000 jobs last month after rising by 150,000 in October.

Interest rate futures imply a nearly 64% chance of a rate cut as soon as March, according to the CME Group's (NASDAQ:CME) FedWatch tool.

Limiting gains in the Dow, shares of Merck fell 1.7% after the drugmaker's immunotherapy combination failed in a lung cancer study.

TOKYO (Reuters) - Japan's economy contracted at an annualised clip of 2.9% in July-September from the previous quarter, worse than the initial estimate of a 2.1% drop, government data showed on Friday.

The revised figure for gross domestic product (GDP) released by the Cabinet Office compared with economists' median forecast for a 2.0% decline in a Reuters poll.

On a quarter-on-quarter basis, GDP shrank 0.7%, compared with the initial 0.5% drop reading and a median forecast for a 0.5% fall.

By Naomi Rovnick

LONDON (Reuters) - Investment banks and asset managers have wildly varying stock market and currency calls for 2024, reflecting deep division over whether the U.S. economy will enter a long-heralded recession and drag the world with it.

The lack of consensus among forecasters is a stark contrast to a year ago, when most predicted a U.S. recession and rapid rate cuts that failed to materialise. The world's largest economy expanded by 5.2% in the third quarter of this year.

The divisions this year have produced a scattergram of projections for the U.S. interest rate path and how global assets that are influenced by the Federal Reserve's actions will perform.

Market participants are therefore bracing for a bumpy start to the new year after a strong rally last month for both stocks and bonds based on a short-term consensus that inflation and interest rates are on a firm downward path.

"Whether the U.S. has a hard landing or a soft landing will dominate the market," said Sonja Laud, chief investment officer at Legal & General Investment Management.

"The narrative isn't clear yet," she added, noting that if current interest rate forecasts "were to shift significantly that creates significant volatility".

Options trading data shows that investors are becoming increasingly interested in protecting their portfolios from heightened stock market volatility ahead.

ALL TOGETHER...NOT

Economists polled by Reuters predict 1.2% U.S. GDP growth for 2024 on average.

But while forecasters are united that the Fed's most aggressive rate hiking cycle in decades will cause a slowdown, they are split on whether 2024 will also include a couple of quarters of economic contraction that may prompt rate cuts and weaken the dollar.

Amundi, Europe's largest asset manager, now expects a U.S. recession in the first half of 2024, meaning the group is negative on the dollar and likes emerging market assets.

In foreign exchange, Japan's yen will be the market's "bright spot" as the Bank of Japan is expected to finally move away from its ultra-easy monetary policy, said Amundi CIO Vincent Mortier.

The yen is trading around 147 per dollar, not too far from 30-year lows.

Morgan Stanley, however, sees no recession and reckons the Fed may keep rates high well into next year. It views the dollar index rising to 111 points from 104 currently, the euro dropping to $1 and the yen recovering only moderately to 142 per dollar.

STOCKS, UP OR DOWN?

For U.S. stocks, which drive world equity markets, forecasters are divided between what Citi head of trading strategy Stuart Kaiser calls the "converts and disciples" of last year's strong recession consensus.

"Some bears are (still) very dedicated and believe that if it didn't happen this year it has to happen next year," Kaiser said.

Deutsche Bank predicts a mild U.S. recession in the first half of 2024 and a whopping 175 basis points of rate cuts, with lower borrowing costs driving the S&P 500 share index to 5,100 points. The S&P 500 has gained 19% this year to 4,567.

JP Morgan views a recession as possible and the S&P finishing the year at 4,200, while Goldman Sachs sees only limited recession risk.

Equity analysts' estimates of S&P 500 earnings are currently the most dispersed since the COVID-19 pandemic, according to Blackrock (NYSE:BLK) Investment Institute (BII).

LGIM, which manages roughly $1.5 trillion of assets, is underweight equities and expects a U.S. downturn, Laud said.

Some investors meanwhile had moved beyond the U.S. economy debate to seek other opportunities.

Luca Paolini, chief strategist at Pictet Asset Management, said the firm's big call was for gains in European equities, which they believed were undervalued.

BONDS ARE BACK

Most economic forecasters agree that a global inflation surge is over. But whether this means dramatic rate cuts, which generally raise bond prices as yields fall, is not something investors agree on either.

Bond giant PIMCO puts the probability of a U.S. recession in 2024 at 50% and recommends government debt over equities.

HSBC fixed income strategists target a 3% yield for the benchmark 10-year U.S. Treasury by late 2024, down from about 4.3% currently.

But Adrian Gray, global chief investment officer at Insight Investment Management, said government bond markets had moved too exuberantly already.

"We're seeing the Fed, the European Central Bank and the Bank of England all cutting (rates) from around Q3 next year," he said.

"Right now, government bond markets are pricing in more than that," he said, projecting yields would rise "a little," from here.

BANGKOK (Reuters) - Thailand's headline consumer price index (CPI) came in at -0.44% in November from a year earlier, the second consecutive month and lowest in nearly three years, the commerce ministry said on Thursday.

The figure compared with a 0.31% year-on-year drop in the previous month and against a forecast for -0.30% inflation in November in a Reuters poll.

Government energy policies have lowered prices for diesel, while pork and chicken meat prices also declined, the ministry said.

It was the seventh successive monthly headline inflation that was below the central bank's target range of 1% to 3%.

Core CPI was at 0.58% year-on-year in November, versus a forecast of 0.60%.

In the January-November period, the headline CPI rose an average 1.41% year-on-year, with the core CPI up 1.33%.

Headline inflation next year is seen in the range of -0.3% to 1.7%, due to measures to reduce costs of living, head of the ministry's trade policy and strategy office Poonpong Naiyanapakorn, told reporters.

"There won't be deflation because prices came down due to government measures, but product prices and the economy continued to grow," he said.

BEIJING(Reuters) - China's exports grew for the first time in six months in November, customs data showed on Thursday, suggesting the manufacturing sector may be beginning to benefit from an uptick in global trade flows.

China's exports increased by 0.5% in November from a year earlier, compared with a 6.4% fall in October and beating the 1.1% drop expected in a Reuters poll. Imports fell 0.6%, following a 3.0% increase in October.

Mixed manufacturing data for November has kept alive calls for further policy support to shore up growth but also raised questions about whether predominantly negative sentiment-based surveys have masked improvements in conditions.

The Baltic Dry Index, a bellwether gauge of global trade, climbed to a three year high in November, supported by improved demand for industrial commodities, particularly from China.

South Korean exports, another gauge of the health of global trade, rose for a second month in November, buoyed by chip exports, which snapped 15 months of declines.

Analysts say it is too early to tell whether the recent policy support will be enough to shore up domestic demand, with property, unemployment and weak household and business confidence threatening a sustainable rebound.

The manufacturing sector is also running at different speeds across different industries, analysts caution.

The International Monetary Fund in November upgraded its China growth forecasts for 2023 and 2024 by 0.4% percentage points each. But Moody's (NYSE:MCO) on Tuesday slapped a downgrade warning on China's A1 credit rating.

By Ankur Banerjee

SINGAPORE (Reuters) - The euro languished near a three week low on Thursday as traders intensified bets that the European Central Bank (ECB) will start cutting rates from March next year, while the dollar was steady ahead of a crucial payrolls data later this week.

The euro was up 0.05% at $1.0767, but remained close to lows of $1.07595 it touched on Wednesday. The single currency is down 1% this week and on course for the steepest weekly decline since May.

Traders are betting that there is around an 85% chance that the ECB cuts interest rates at the March meeting, with almost 150 basis points worth of easing priced by the end of next year.

The question of a rate cut could emerge in 2024, ECB member and Bank of France head Francois Villeroy de Galhau told a French paper in an interview published on Wednesday.

Villeroy told La Depeche du Midi that "disinflation is happening more quickly than we thought."

The ECB will set interest rates on Thursday next week and is all but certain to leave them at the current record high of 4%. The Federal Reserve and Bank of England are also likely to hold rates steady next Wednesday and Thursday respectively.

The dollar has found its footing this month after a 3% drop in November as traders ramp up rate cut bets for other central banks.

The dollar index, which measures the U.S. currency against six rivals, was little changed at 104.12, having risen 0.17% overnight. The index is up 0.9% this week, on course for its strongest weekly performance since July.

Data on Wednesday showed U.S. private payrolls increased less than expected in November, in yet another sign that the labour market is gradually cooling.

Investor focus will be on Friday's non-farm payrolls data for a clearer picture of the labour market.

"The various labour market statistics suggest the U.S. labour market is slowly loosening," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).

"In our view, a sharp weakening of the labour market is needed for financial markets to price in a U.S. recession that we have long expected."

A recent string of softening economic data along with commentary from U.S. Federal Reserve officials have stoked expectations that the central bank is at the end of its rate-hike cycle and will begin to cut rates as soon as March.

Markets are pricing in a 60% chance of a rate cut in March, according to CME FedWatch tool, compared to 50% a week earlier. They are anticipating 125 basis points of cuts from the Fed next year.

Analysts though have cautioned that the markets have been too aggressive in pricing in rate cuts next year.

"The market is too aggressively priced for Fed rate cuts heading into 2024 and so we expect a correction in this pricing to deliver a stronger USD," said David Forrester, currency strategist at Credit Agricole (OTC:CRARY) CIB.

Meanwhile, the Bank of Canada on Wednesday held its key overnight rate at 5% and, in contrast to its peers, left the door open to another hike, saying it was still concerned about inflation while acknowledging an economic slowdown and a general easing of prices.

The Canadian dollar tacked on 0.01% versus the greenback to 1.36 per dollar.

Elsewhere, the Japanese yen strengthened 0.16% to 147.07 per dollar. The offshore Chinese yuan eased 0.02% to $7.1717 per dollar. The Australian dollar added 0.03% to $0.655.

In cryptocurrencies, bitcoin was 0.19% higher at $43,910.11.

By Trevor Hunnicutt, Steve Holland and Mike Stone

WASHINGTON (Reuters) -President Joe Biden pleaded with Republicans on Wednesday for a fresh infusion of military aid for Ukraine, warning that a victory for Russia over Ukraine would leave Moscow in position to attack NATO allies and could draw U.S. troops into a war.

Biden spoke as the United States planned to announce $175 million in additional Ukraine aid from its dwindling supply of money for Kyiv. He signaled a willingness to make significant changes to U.S. migration policy along the border with Mexico to try to draw Republican support.

"If Putin takes Ukraine, he won’t stop there," Biden said. Putin will attack a NATO ally, he predicted, and then "we’ll have something that we don't seek and that we don't have today: American troops fighting Russian troops," Biden said.

“We can’t let Putin win,” he said.

The White House warned this week that the U.S. is running out of time and money to help Ukraine repel Russia's invasion.

White House national security adviser Jake Sullivan, in a phone interview with Reuters about building up Ukraine's defense industrial base, said the U.S. was sticking to its long-held position not to pressure Ukraine into negotiations with Russia.

"That's going to have to be up to them. We're just going to keep fighting day in and day out to try to secure this money," Sullivan said.

"We're going to keep making the case that it would be a historic mistake for the United States to walk away from Ukraine at this moment and we believe that argument will ultimately penetrate and prevail," he said.

He said Biden is prepared to have "reasonable, responsible discussions to produce a bipartisan outcome on border policy and border sources."

By mid-November, the U.S. Defense Department had used 97% of $62.3 billion in supplemental funding it had received and the State Department had used all of the $4.7 billion in military assistance funding it had been allocated, U.S. budget director Shalanda Young said this week.

A U.S. official said Washington has less than $1 billion in "replenishment authority." This means that if Congress does not provide new funds to buy replacement equipment, the U.S., Ukraine and arms makers may have to take other steps to backfill stocks.

Border security with Mexico is a major issue weighing on the negotiations about Ukraine and Israel funding.

House and Senate Republicans are backing renewed construction of a border wall, former President Donald Trump's signature goal, while deeming large numbers of migrants ineligible for asylum and reviving a controversial policy under which asylum seekers are told to remain in Mexico while their immigration case is heard.

Biden said he was willing to make "significant" compromises on the border issue but said Republicans will not get everything they want. He did not provide details.

"This has to be a negotiation," he said.

Biden, who had discussed Ukraine in a virtual summit with G7 leaders earlier on Wednesday, said U.S. allies are prepared to continue supporting Ukraine in its 22-month war to repel Russian invaders.

"Extreme Republicans are playing chicken with our national security, holding Ukraine's funding hostage to an extreme partisan border policy," said Biden.

By Sarah Marsh

BERLIN (Reuters) - The EU should join forces with African countries to reform the World Trade Organization's (WTO) subsidy rules as a way to counter Chinese market distortions and diplomatic influence, the German Economic Institute (IW) argued in a paper on Wednesday.

The IW, which is financed by prominent German business associations and carries weight among Berlin policymakers, published the paper ahead of an EU-China summit in Beijing on Thursday and Friday.

The issue of unfair competition is expected to top the agenda, three months after the European Commission launched an anti-subsidy probe into Chinese electric vehicles.

Reform is to be a key topic at the WTO's 13th ministerial conference (MC13) in February, although it requires a full consensus to make any substantive changes.

The WTO's Africa negotiating group has proposed reforming current subsidy rules to better support developing countries - for example allowing them to have local content requirements and to grant subsidies for environmental protection.

The IW argues in its new paper, seen by Reuters ahead of publication, that the EU should expand this initiative to also tighten subsidy rules on the world's top trading countries.

Those major players would be determined according to their share of global trade or income level. That means new rules would affect China, even though the WTO classifies it as a developing country.

Such a joint EU-African initiative could pressure China to accept reform and would help limit the growing global subsidy race.

"In addition, the EU could counter China’s attempt to present itself as the supporter of developing countries’ interests in Geneva," wrote Juergen Matthes and Samina Sultan, authors of the paper "Reforming the WTO’s subsidy rules –A new opportunity to tackle the global distortions of China’s state capitalism".

"If China blocked the... reform, it would also block the vital interests of the African Group and other developing countries in gaining more policy space for development."