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

Wee

It's been a rollercoaster ride of a week and Friday is

shaping up to be no exception for investors, with risk assets in

particular set for a heavy beating when Europe wakes up.

All it took was a softer-than-expected ISM report on U.S.

manufacturing for markets to start fretting about the economic

outlook and abandon their optimism over the Federal Reserve's

signals on a September rate cut.

The fear now is that the Fed may be behind the curve in

easing rates, and traders have priced in an even greater chance

of a 50-basis-point cut next month, versus the previous

consensus of 25 bps.

The new growth worries have triggered a sharp selloff in

stocks, while the safe haven yen and Swiss franc scored solid

gains.

U.S. Treasury yields meanwhile slumped to their lowest in

months, after the manufacturing data triggered doubts over

whether the world's largest economy could achieve a

much-anticipated soft landing.

Lingering geopolitical worries also weighed down sentiment.

The Israeli military said on Thursday, a day after Hamas'

political leader was assassinated in Tehran, that the head of

the group's military wing, Mohammed Deif, was killed in an

Israeli airstrike in Gaza last month.

With a light data calendar in Europe, that leaves the focus

on tonight's U.S. nonfarm payrolls report, where a miss in

expectations would only accelerate the risk retreat.

Economists polled by Reuters expect 175,000 jobs to have

been added in July, down from the previous month's 206,000. Eyes

will also be on the unemployment rate, which is forecast to hold

at 4.1%.

Elsewhere, Japan's Nikkei was headed for its worst

day in more than four years, tracking Wall Street's slide and as

a strengthening yen looked set to weigh on exporters' profits.

How much further domestic rates could rise even in the face

of a weakening economy also clouded the outlook.

The latest yen rally, and in turn the Nikkei's decline, were

triggered by the Bank of Japan's rate hike on Wednesday, part of

Governor Kazuo Ueda's moves to dismantle his predecessor's

unorthodox ultra-easy policies.

Key developments that could influence markets on Friday:

- U.S. nonfarm payrolls report (July)

- Bank of England Chief Economist Huw Pill speaks

- Exxon, Chevron report earnings