European shares steadied around six-week lows on Friday pending jobs data which will give the latest clues on whether the U.S. economy is strong enough to warrant an easing of equity-friendly stimulus.
After a year-long rally fuelled by global central bank support, equity markets are getting increasingly concerned that the policy cycle could be turning, with the European Central Bank this week saying it is in no rush to launch fresh measures, while U.S. Federal Reserve officials openly discuss when would be the right time to start scaling back quantitative easing.
The creation of more than the expected 170,000 U.S. jobs in May could therefore provide the catalyst for stock market declines, while a very weak number may be a positive.
With so much riding on the data, investors were unwilling to move the market too far in either direction. The FTSEurofirst 300 was down 0.1 percent at 1,176.94 points at 1002 GMT after a volatile morning when it darted either side of the no-change line and held around six-week lows.
"The markets are quite nervous about it ... They need reassurance about QE to be stable, so a strong number would cause a disruption," said Hans Peterson, global head of investment strategy at SEB Private Banking.
Analysts at Bank of America Merrill Lynch estimate that payrolls would have to rise by over 250,000, followed by an eventual second quarter gross domestic product reading showing growth of around 3.5 percent, to spark an unwinding of QE as soon as September. In contrast, readings below 90,000 could pave the way for more stimulus.
"Over the very short run there might be some relief but the general theme is that ... we seem to be losing our mantra that central banks will help us all the way," said Gerhard Schwarz, head of equity strategy at Baader Bank, forecasting a correction of 10 percent or more into the third quarter.
SEB's Peterson said for a fresh leg higher, the market would need to shift from being supported by central bank stimulus to finding comfort in improving economic fundamentals - a shift from the current stance when bad data is 'good' for stocks:
"The market has to mature into a new trend and that mindset change will take time ... It's time be a bit more conservative."
Reflecting the more cautious mood, Thomson Reuters Lipper data showed U.S.-based funds pulling money out of European equities for a second week in a row, with an outflow of some $1.8 billion - the biggest weekly drain since late 2011.