MARKET WRAPS
Watch For:
EU foreign trade, labor cost index, Eurogroup meeting of eurozone finance ministers; U.K. Bank of England's funding for lending and term funding schemes data; CPI data for France, Italy; trading updates from H&M, Frasers Group
Opening Call:
European stock futures rose Friday after the European Central Bank raised interest rates by 25 basis points, but suggested this should mark the peak. In Asia, stock benchmarks mostly advanced after China announced measures to aid recovery; the dollar weakened slightly; Treasury yields fell; while oil futures rose and gold inched up.
Equities:
Stock futures point to gains in European equities at the open, as traders digest a spate of U.S. economic data and an interest-rate hike by the ECB, while cheering Arm 's IPO as the British semiconductor-design firm started trading on Nasdaq on Thursday.
Investors are also keeping an eye on the Chinese central bank's cut in banks' reserve requirement ratio and the lowering of its short-term policy rate, as well as data showing fresh signs of fragile economic recovery.
Sales at U.S. retailers rose 0.6% in August, climbing for a fifth straight month, while U.S. wholesale prices jumped 0.7%, according to the PPI index.
The latest batch of data helped assuage investors' concerns about the strength of the U.S. consumer.
"If consumers are employed and have money to spend, that should keep the economy away from deteriorating too much," said Randy Frederick, managing director of trading and derivatives at Schwab.
Traders are betting the U.S. central bank won't raise rates at next week's meeting, but still think one more quarter-percentage-point hike before the end of the year is possible.
"Interest-rate certainty is a huge deal for small-caps with a lot of debt," Frederick said.
"More certainty helps consumers and companies plan better-that's a good market environment."
Fed funds futures traders continued to see a 97% probability of no interest-rate hikes by the Federal Reserve at its policy meeting next week, while the chance of a 25-basis-point hike at its November meeting was seen at 32.4%, slightly lower from earlier this week, according to the CME FedWatch Tool.
Meanwhile, investors are also hoping that a well-received Arm listing may help revive the U.S. IPO market and boost bullish sentiment in the stock market more broadly..
Forex:
The dollar lost some ground in Asia on improved risk appetite driven by supportive U.S. and China economic data and by the People's Bank of China's reserve requirement ratio cut.
U.S. data released overnight exceeded expectations, which helped sustain the 'soft-landing' narrative for the U.S. economy, although this also maintains pressure on the Fed to keep rates higher for longer, said Matt Simpson, market analyst at City Index and https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!Cr2ZAlqoiYwmBRoxRt_iBSeWwQ3oc4YV0SYr-V-RNottxtqEIN2VfMfqg1XXwH-FbtyWNQVRzsshYJ6a6KpZ9pUhYZhP5lIT2b3IFNd5d8s$ .
Strong U.S. economic data and the ECB signaling the end of their tightening cycle are supporting the dollar. U.S. economic outperformance can continue to support the dollar in the near term, said Commonwealth Bank.
However, one near-term risk that can inject some volatility into currency markets is a potential partial U.S. government shutdown from October 2023, it added.
The U.S. currency is expected to remain strong until the global economy improves and the Fed begins cutting rates, Capital Economics said.
Bonds:
Treasury yields retreated after earlier gains on hot U.S. economic data, which indicated the Fed will likely stick to tight monetary policy.
Jobless claims rose less than expected while retail sales and PPI surprised on the upside.
The ECB raised rates, but signaled it may be done hiking.
Fed funds futures trading that implies no further action by the Fed in 2023 "is a little inconsistent with the short-term data we've seen," said AmeriVet Securities.
"In the context of the data, PPI was hotter than expected, CPI was as expected with inflation still sticky, and initial jobless claims are pointing to a relatively decent labor market."
It expects the Fed's Summary of Economic Projections, due next Wednesday, to continue to reflect one more 25 basis point rate hike for this year.
Energy:
Oil futures gained in Asia after the U.S. crude-oil benchmark settled above $90 a barrel on Thursday for the first time since November, lifted by ongoing concerns over the outlook for tight global supply.
Crude oil "appears to be responding more to supply issues once again amid signs that demand could hold up or even potentially increase in future," said SIA Wealth management.
WTI crude has broken out above the $90 "round number," and the market may start to hear "more chatter about the big $100 barrier, and political pressure to do something about rising energy costs may start to ramp up again," it said.
Metals:
Gold edged higher but strength in the U.S. dollar in the wake of an interest-rate hike and statement from the ECB may limit the metal's rise.
Traders described the ECB's 25-basis-point interest rate hike on Thursday as "dovish," potentially boosting the appeal of gold by suggesting that global bond yields may not need to rise much higher.
However, Fawad Razaqzada, market analyst at City Index and https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!Cr2ZAlqoiYwmBRoxRt_iBSeWwQ3oc4YV0SYr-V-RNottxtqEIN2VfMfqg1XXwH-FbtyWNQVRzsshYJ6a6KpZ9pUhYZhP5lIT2b3IFNd5d8s$ , said "it is difficult to be too bullish on gold right now as the renewed surge in inflation may force the Fed to hike interest rates perhaps one more time before the end of the year."
The potential for the central bank to keep interest rates "high for longer" could continue to weigh on gold prices, which have been declining since their peak in May this year," said CPT Markets.
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Copper rose, boosted by the PBOC's RRR cut Thursday and China's stronger-than-expected retail sales and industrial output data released this morning.
Prices of base metals such as copper are on the front foot as the PBOC's RRR cut spurs broader market hopes for some stabilization in China, TD Securities said.
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Iron ore prices were higher, with investor sentiment boosted by the PBOC's move to cut the reserve requirement ratio for banks.
Demand for iron ore is strong in the near term, as steel mills have begun to restock before China's upcoming Golden Week holidays, Xinhu Futures said.
Meanwhile, Chinese steel mills have increased their operating rates, while molten iron output rose in August, ANZ said.
TODAY'S TOP HEADLINES
China's Economy Shows Fresh Signs of Fragile Recovery
SINGAPORE-China's economy showed modest signs of improvement in the late summer after months of feeble growth, tentative evidence that the slowdown in the world's second-biggest economy that is holding back global growth might be easing.
China isn't out of economic danger just yet, with a drawn-out property slump, falling exports and frosty relations with the U.S.-led West among a stack of challenges facing leaders in Beijing.
Democrats join GOP, banks in pushing back on proposed bank capital rules
Democrats are increasingly split over the issue of tougher bank regulations, as some of the party's lawmakers join their Republican colleagues and bank executives in questioning whether the Federal Reserve and its partner agencies are going too far with proposed rules that critics say could slow growth and crimp lending to critical sectors of the economy.
The Fed, in conjunction with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, proposed in July that banks keep higher levels of shareholder-funded capital on hand to protect against losses on lending activity like mortgages and corporate loans.
Russia Seeks to Expand Naval Presence in the Mediterranean
As the U.S. and Russia vie for greater influence in Africa, Moscow is seeking access for its warships to a Mediterranean port in Libya that could expand its naval footprint in the North Atlantic Treaty Organization's backyard.
Senior Russian officials, including Deputy Defense Minister Yunus-Bek Yevkurov, met with Libyan warlord Khalifa Haftar in recent weeks to discuss long-term docking rights in areas he controls in the war-torn country's east, according to Libyan officials and advisers. The Russians have requested access to the ports of either Benghazi or Tobruk, the Libyan officials and advisers said, both of which are located less than 400 miles from Greece and Italy.
European Powers Choose to Maintain Iran Sanctions
European powers will keep in place sanctions on Iran's Islamic Revolutionary Guard Corps and on trade in ballistic missiles with Tehran-restrictions that were due to expire next month under the 2015 nuclear deal, European officials said Thursday.
The decision, which has already been communicated to Tehran, is based on the charge by France, the U.K. and Germany that Iran has failed to comply with large parts of the 2015 deal. However, the move won't prevent the lifting of United Nations sanctions on ballistic-missiles trade with Iran, potentially freeing Russia and China to deepen their military cooperation with Tehran.
ICG Appoints Alzheimer's Specialist as Adviser on Life Sciences Deals
Intermediate Capital Group has hired a well-known research scientist and pharmaceuticals executive to advise its life sciences unit.
Dr. Samantha Budd Haeberlein joins the London investment manager as a senior adviser to the seven-person investment team, which backs companies that aim to address unmet medical needs, the firm told The Wall Street Journal.
Volodymyr Zelensky to Meet Biden, Lawmakers in Washington Amid Push for More Aid
(MORE TO FOLLOW) Dow Jones Newswires
09-15-23 0014ET
