MARKET WRAPS
Watch For:
UK public sector finances, retail sales; trading updates from Thales, Sika, Lonza, SSAB, Autoliv, Danske Bank, Finnair, Vodacom, Hermès, Renault
Opening Call:
Shares could start out slightly lower on Friday. In Asia, stock benchmarks were mixed; Treasury yields lost ground; the dollar slipped; oil edged up amid signs of supply reductions, while gold gained
Equities:
European stocks could head toward negative territory on Friday, after the mixed performance of Wall Street benchmarks overnight.
The Dow Jones Industrial Average had risen for a ninth straight day, helped by Johnson & Johnson's results, while a post-earnings selloff in Tesla shares weighed on the S&P 500 and Nasdaq Composite.
"Investors are getting more fundamental now that we've gotten past the sentiment part of the rally and substance is required," said Waddell & Associates.
Value stocks and other lagging sectors of the market appear to be playing "catch up," said Murphy & Sylvest Wealth Management.
"We're finally seeing the rotation to value," it said. "The Dow is playing catch up with the S&P 500 and the Nasdaq."
The stakes get higher next week as some of the biggest tech companies in the U.S. are set to report earnings, including Alphabet, Microsoft and Meta Platforms.
Forex:
The dollar declined amid lower Treasury yields, which reduce the appeal of U.S. fixed-income assets and demand for the greenback.
The dollar looks vulnerable in the short term as the Federal Reserve gets closer to the end of its rate-rising cycle, SEI said.
Inflation will continue to moderate, but a short-term path to levels around 2% is unlikely, meaning central banks are likely to maintain tighter monetary policy for a longer period than is currently priced into the market, it said.
Odds of a 25-basis point rate increase next week reach 99.8% in the CME's FedWatch tool, as markets see recent data as supportive of one more hike followed by a long pause.
The increase would take the fed funds rate to a 5.25%-5.5% range. In the CME's tool, only in March odds of a cut back to the current 5%-5.25% band are higher than bets on a continued pause.
The pricing runs against some analysts' forecasts calling for a sharp economic slowdown in coming months moving up rate cuts, while other forecasters expect the opposite, with even one more rate increase this year.
Bonds:
Treasury yields weakened, following an earlier rise on lower-than-expected weekly applications for jobless benefits and a decline in June's existing home sales.
Markets still expect the Fed to raise rates by 25 basis points Wednesday, then pause for several months, and no economic data scheduled for release before the Fed meeting looks likely to change that expectation.
The post-meeting Fed communication is expected to point to a pause in September depending on upcoming data.
"The curve is entering a pivotal zone and the opening gap at -108.5 bp to -107.3 bp looms as an important technical level" for the spread between 2- and 10-year yields, said BMO Capital Markets.
Energy:
Oil futures rose slightly in Asia amid evidence of supply reductions from Saudi Arabia and Russia, ANZ Research said.
Ship-tracking data shows Saudi Arabia transported at least 400,000 barrels a day less in the first half of July compared with the previous month's average, ANZ Research noted.
Also, Russia's crude-oil shipments dropped to a six-month low in the four weeks to July 16, it added.
"Oil prices could remain volatile over the short term with traders' attention constantly shifting between demand and supply sides," said Wael Makarem, senior market strategist, MENA at Exness.
"The efforts led by Saudi Arabia and Russia to cut production levels have been able to push prices out of their range and took the market to the upside this month and could continue to provide strong upside support over the medium term," he said in market commentary.
The crude market is expected to move into a supply deficit in the second half of the year, while Saudi Arabia and Russia have announced supply cuts.
Expectations that the Federal Reserve is near the end of its rate-hike cycle as inflation continues to cool have been cited as supportive for crude, which has bounced higher in July.
Metals:
Gold edged higher in Asia amid mild weakness in the dollar, which typically has an inverse correlation with the precious metal.
Gold price's downside is likely limited as the Fed approaches the end of its tightening cycle and the expected rate increase at next week's FOMC meeting is already priced in, ING said.
ING expects gold prices to move higher during the second half of next year, partly because the Fed should begin to pause its rate-increase cycle.
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Copper edged higher, buoyed by speculation that China is considering mortgage easing to spur home buying.
Such a move would lift demand for the metal since it is used in construction. Copper is garnering some support, said TD Securities citing the speculation and the People's Bank of China's recent measures to support the yuan.
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Iron ore futures declined, as sentiment continued to be weighed by China's soft economic data released earlier this week and a lack of substantial stimulus so far.
If Beijing steps up supervision of iron ore markets in the future, that is likely to be negative for iron ore prices in the medium term, and there may be a surplus in supply, Huatai Futures said.
TODAY'S TOP HEADLINES
China Launches Measures to Boost Car, Electronics Consumption
China on Friday unveiled a host of measures to boost auto and electronics consumption, the latest move by Beijing officials to shore up the world's second largest economy.
The country's top economic planner, the National Development and Reform Commission, called for local governments to bolster and support auto purchases through measures that include raising annual car purchase quotas, optimizing secondhand car transactions and enhancing consumer credit support. The commission also said it would support more new-energy vehicle purchases by the public sector.
UK Consumer Confidence Slid Backward in July as Tough Economy Takes Its Toll
Confidence among U.K. consumers fell back sharply in July after months of improvement as inflation and high interest rates began to put a squeeze on spending, according to a survey published Friday.
Consumer confidence slid six points to minus 30 this month from minus 24 in June, according to the index compiled by consumer-research firm GfK, breaking five straight months of improving sentiment. This was worse than the minus 26 expected by economists, according to a Wall Street Journal poll.
Bernanke says it is clear Fed will hike interest rates next week, but a September move is 'up for grabs'
Former Federal Reserve Chairman Ben Bernanke on Thursday said it was clear that the Fed will raise interest rates next week but after that the outlook is cloudier.
After a 25 basis point hike in the fed funds rate next week, "the September meeting is very much up for grabs," Bernanke said, in a webinar sponsored by Fidelity Investments. Bernanke is also currently a senior advisor to fund manager PIMCO.
U.S. economy is heading to a soft landing and its stocks may be a better bet than those in China and Europe, says Goldman Sachs
Most economists are expecting a recession to hit the U.S. in the next 12 months and company earnings growth to become stagnant in 2023, but Goldman Sachs is much more optimistic.
While economists polled by the Wall Street Journal forecast a 54% chance that the U.S. would see a recession in the next 12 months, Goldman Sachs recently lowered the chance of it happening to 20% from 25%.
SAP Tweaks Guidance After 2Q Sales, Profit Boost
SAP on Thursday updated its guidance for the year after reporting higher revenue and operating profit in the second quarter, driven by strong growth at its core cloud business.
Reporting on a non-IFRS basis, the Walldorf, Germany-based software company said total revenue climbed to 7.55 billion euros ($8.46 billion) from EUR7.21 billion in last year's second quarter, with cloud revenue up to EUR3.32 billion from EUR2.80 billion, but software-licenses revenue down to EUR316 million from EUR426 million.
France's Macron Shuffles His Government, Seeking a Fresh Start
PARIS-President Emmanuel Macron is shaking up France's government to help revive his second term in office after months of protests and riots that rocked the country.
In a cabinet shuffle announced Thursday, eight ministers are being removed, an effort to reshape an unwieldy government that has struggled to govern the country after Macron lost his majority in the National Assembly last year. But he stopped short of a wholesale overhaul-for now at least-keeping in place Prime Minister Élisabeth Borne, whom he had considered firing, too, officials say.
Ukrainian Military Warns Ships Against Heading to Russian Black Sea Ports
Warnings by both Russia and Ukraine to strike cargo ships in the Black Sea are escalating a dispute over grain shipments and threatening to broaden the war to the strategic waterway.
Ukraine's declaration, which takes effect midnight Thursday, said all ships sailing to Russian-controlled ports would be doing so "with all associated risks." In addition, sailing in the northeastern Black Sea and the Kerch Strait separating occupied Crimea from Russia was "prohibited by Ukraine as dangerous," starting at 5 a.m. Thursday, the Ukrainian Defense Ministry said.
Sergey Brin Is Back in the Trenches at Google
Google co-founder Sergey Brin is back at work.
The multibillionaire has been visiting the tech giant's Mountain View, Calif., offices in recent months generally three to four days a week, working alongside researchers as they push to develop the company's next large artificial-intelligence system.
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Expected Major Events for Friday
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07-21-23 0019ET
