MORNING BID-Why payrolls might not matter to markets

A look at the day ahead in U.S. and global markets from Dhara Ranasinghe. It's payrolls Friday, yet the most keenly awaited U.S. economic data point may not hold much sway over markets that are already behaving as if the U.S. tightening cycle is over.

The yield on two-year U.S. Treasuries, the most sensitive to the interest rate outlook, is down some 26 basis points (bps) this week alone to around 4.22%. If it holds at current levels, this would mark one of the biggest weekly drops in the last two years.

Speculation the end of the tightening cycle is in sight has also helped lift the S&P 500 stock index this week to its highest levels since September.

For some, the euphoria surrounding the notion that inflation has peaked, meaning the Federal Reserve can start to slow the pace of aggressive rate hikes, needs a reality check.

One line of argument goes that to justify the move seen in government bond markets, the Fed needs to be more or less done in December.

And for many economists and Fed policymakers - judging by recent comments - the tightening is not done yet.

New York Federal Reserve President John Williams on Thursday reiterated his belief that more interest rate rises will be needed to bring down overly high levels of price pressures.

So, where does this all leave the November non-farm payrolls report out at 1330 GMT?

Well, economists polled by Reuters forecast the U.S. economy created 200,000 new jobs last month, the smallest number since December 2020, after an increase of 261,000 in October.

The Reuters poll was, however, conducted before an Institute for Supply Management report on Thursday showing U.S. manufacturing contracted in November for the first time in 2-1/2 years, with a measure of factory employment falling sharply.

In the light of that data, markets may be anticipating a lower number later on. And no doubt that will reinforce the market view that the Fed will likely hike rates by a less aggressive 50 bps at its December meeting.

Ahead of the U.S. jobs data there's plenty for investors to mull over.

Credit Suisse is accelerating cost cuts announced just weeks ago, Chairman Axel Lehmann said on Friday, as client outflows and a slowdown in activity weigh on the Swiss bank's revenue outlook.

Its shares rebounded from Thursday's record lows on Friday.

Blackstone has limited withdrawals from its $69 billion unlisted real estate income trust (REIT) after a surge in redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

The redemptions have fueled investor concerns about the future of the REIT.

And in China, sources told Reuters Beijing is set to announce an easing of its COVID quarantine protocols in the coming days and a reduction in mass testing, a marked shift in policy after anger over the world's toughest curbs fueled widespread protests.

China's yuan was set for its biggest weekly gain against the dollar since China ended the dollar peg in 2005, while the dollar was pinned near 16-week lows against a basket of major currencies. Key developments that may provide direction to U.S. markets later on Friday: * US Nov non-farm payrolls * Canada Nov jobs data * Fed Reserve Bank of Chicago President Charles Evans speaks

(Reporting by Dhara Ranasinghe Editing by Mark Potter)