US pre-open: Stocks seen up ahead of payrolls amid signs of improving Sino-US relations

US stocks looked set for a positive open on Friday, with investors likely to welcome signs of progress in Sino-US relations and China’s latest economic stimulus measures, ahead of the release of the latest non-farm payrolls report.

At 1220 GMT, Dow Jones Industrial Average and S&P 500 futures were up 1.3% and 1.4%, respectively, while Nasdaq futures were 1.7% higher.

News that the US and China will hold vice-ministerial level negotiations over trade in Beijing on 7-8 January was set to boost the tone in financial markets. These will be the first face-to-face talk since Donald Trump and Xi Jinping met at the G-20 meeting in December and agreed a temporary truce on tariffs.

Oanda analyst Craig Erlam said the talks will hopefully lead to fewer rather than more tariffs and reduce a major headwind for the global economy.

"Trump has previously claimed that the talks are progressing well, although that may have been said with one eye on the spiralling stock market rather than be a reflection of genuine progress.

"It is encouraging that there is real appetite to work towards a solution on both sides though, although whether that will be enough to get a comprehensive agreement over the line is another thing."

Also likely to buoy the mood was data showing that China's services sector expanded at a slightly faster pace in December. The Caixin China services purchasing managers' index ticked up 53.9 in December from 53.8 in November, beating expectations for a reading of 52.9.

In addition, the People’s Bank of China said it would be cutting the required reserve ratio for banks by 0.5 percentage point on 15 January, with a further 0.5 percentage point cut on 25 January. China’s central bank said the cut will release a net 800 billion yuan ($116 billion) of liquidity.|

On the macro calendar, the big event will be the release of the non-farm payrolls report, unemployment rate and average hourly earnings at 1330 GMT.

The jobs report is expected to show that 177,000 jobs were added in the US in December, while the unemployment rate is expected to have held steady at 3.7%. Average earnings on a yearly basis are forecast to have eased to 3% from 3.1%, but on a monthly basis they are expected to be 0.3%, up from 0.2%.

"At a time when a global growth slowdown is being discussed and Fed interest rate expectations have been significantly pared back - there is now a 0% chance of a rate hike this year according to Fed funds futures - the jobs data has continued to perform well and more of the same is expected today," said Erlam.

"Should we get another stellar report, with another 177,000 jobs expected to have been added and 3.7% unemployment, is it really the case that three rate cuts is more likely this year than one hike? Especially with the Fed only a couple of weeks ago forecasting two hikes this year. A good jobs report today may not be enough to make a huge different to investor sentiment today but a bad one may fuel further panic that sends stock markets plummeting once again. As ever, a lot of attention will fall on the wages component of the report, although this may be less relevant now with hikes apparently off the table."