U.S. stock futures steadied on Friday ahead of U.S. payrolls data, with investors cautiously optimistic that the world might avoid a full-on trade war, while the prospect of more rate hikes in Japan this year briefly sent the yen towards two-month highs.

In a week that started with U.S. President Donald Trump kicking off a trade war and whipping up market volatility, investors have been wary of making any major moves, given that he followed through on his threat to impose duties on China while granting Mexico and Canada a one-month reprieve.

The all-important U.S. jobs report for January is due ahead of the Wall Street open. Economists expect to see 170,000 workers added to nonfarm payrolls last month, but given the potential distortions from spells of cold weather and the California wildfires, the range of forecasts is wide.

"The focus for the financial markets in recent weeks has been very much on Trump and his economic policies, in particular on trade, but today there is the potential for the jobs data to influence Fed rate expectations," Derek Halpenny, a currency strategist at MUFG, said.

"A pretty large divergence from the consensus is still likely required to shift expectations notably but extreme weather at this time of the year has in the past resulted in sharply weaker NFP readings and weather could impact today’s report," he said.

Futures on the Nasdaq and S&P 500 were trading mostly steady on the day, while shares of Amazon slipped in premarket trading on the back of weakness in the retailer's cloud unit.

In Europe, the STOXX 600 headed for a seventh straight week of gains, trading flat on the day after having hit record highs earlier this week, following a spate of strong earnings from the likes of Danish weight-loss drugmaker Novo Nordisk, German software company SAP and French lender BNP Paribas.

European stocks have staged their best performance in a decade against Wall Street in the first six weeks of 2025, but the focus is now on whether those gains can be sustained.

On the Asian market, tech stocks staged a rally, powered by Chinese retail investors, who have pounced on the AI theme in the wake of home-grown start-up DeepSeek's breakthrough.

DELICATE CHINA

Beijing's seemingly measured response to Trump's tariffs has left room for negotiations, analysts say, which has helped repair investor sentiment.

China's blue-chip stock index closed up 1.3% after touching a one-month high.

"Whilst there is considerable noise and uncertainty, we don't see escalating trade tensions as a game changer in the prospects for the Chinese market," said James Cook, investment director for emerging markets at Federated Hermes.

"China's bigger problem is not Trump but the domestic economy."

While political uncertainties kept investors wary, fears have eased that Trump's approach to tariffs could escalate into a global trade war.

Markets are pricing in 43 basis points of easing this year from the Fed, with a rate cut in July fully priced in, as policymakers are in no hurry to start the rate-cutting cycle again.

The dollar edged up 0.1% against a basket of currencies, having rallied 7% last year, as investors priced in a far more aggressive policy stance from the Fed this year, where rate cuts may be few and far between.

Other central banks are cutting interest rates, while the Bank of Japan is gearing up for at least another rate hike this year. Strong wage growth data has beefed up the chances of tighter monetary policy, which has pushed the yen to two-month highs against the dollar.

The yen touched 150.96 per dollar overnight, its strongest level since December 10, before easing to leave the dollar up 0.4% on the day at 152.155.

Sterling reversed earlier losses to rise 0.1% to $1.2449, having dropped 0.5% on Thursday as the BoE cut interest rates and slashed its 2025 UK growth forecast.

In commodities, oil edged up, while gold steadied above $2,800 an ounce, close to record highs.

(Additional reporting by Ankur Banerjee in Singapore; additional reporting by Stephen Culp, Marc Jones and Alun John; editing by Shri Navaratnam, Sam Holmes, Gareth Jones and Angus MacSwan)