MARKET WRAPS
Stocks:
European stocks pushed higher on Friday, as investors bet that a contracting U.S. economy would make the Federal Reserve reconsider its pace of monetary tightening.
After raising its benchmark interest rate by 0.75 percentage point for a second straight meeting, the Fed indicated that at some stage it will likely ease off to gauge the effects of higher rates on the economy.
But many investors remain cautious about the outlook for the economy and stocks. With rampant inflation, some say central banks in the U.S. and elsewhere will remain in a hurry to raise rates.
"The key takeaway is that they're not falling off a cliff," said Brian O'Reilly, head of market strategy at Mediolanum International Funds, of earnings. "Consumer demand is still relatively strong."
Nonetheless, O'Reilly thinks the bounce in stocks will fade. "We're still facing a pretty dicey economic backdrop," he said, adding that there are few signs that inflation is peaking.
Read: Eurozone Recovery Picks Up Speed but Ukraine War Threatens Deep Contractions
Read: Eurozone Inflation Rose to Record High of 8.9% in July, Beating Forecasts
U.S. Markets:
Apple shares were almost 3% higher in premarket trade, and Amazon.com was putting in an even bigger move, jumping almost 12%.
Those gains, following earnings from the two tech giants, were giving a boost to the rest of the technology sector and lifting broader U.S. stock-index futures, with the S&P 500 on track for its best month in almost two years.
In the bond market, the yield on 10-year Treasurys edged up to 2.700% from 2.680% on Thursday. Yields have fallen in recent weeks on expectations the Fed will soon slow the pace at which it is raising interest rates.
Major oil companies Exxon Mobil and Chevron are due to file earnings before the opening bell. Results from Procter & Gamble and Colgate-Palmolive will give money managers clues about the strength of consumer demand amid signs the economy is heading for a recession.
Forex:
The euro held its gains on the day after the latest eurozone inflation and economic growth data came in ahead of expectations.
The figures come after the European Central Bank removed its forward guidance in its policy statement last week and said future interest rate decisions will be data-dependant.
The dollar fell to a more-than-3-week low against a basket of currencies in further reaction to Thursday's GDP data.
MUFG said the data caused market participants to reduce expectations for rises in U.S. interest rates. But a strong ECI, which hit a record high in the first quarter, "could cast some doubt on the markets' expectation for less hawkish Fed policy and provide some relief for the dollar."
Bonds:
The 10-year German Bund yield could fall further this summer, and a test of 0.50% can't be excluded, said ING.
Developed-market rates continue to price out interest rate rises, taking their cues from the U.S., resulting in lower rates across the board and in markedly steeper curves. ING acknowledges that an upside surprise in eurozone inflation is a risk to downward moves in yields, but said that "the path lower in rates is not in doubt, in our view."
Government bond yields have moved lower lately on the prospect of slowdown in growth.
Commerzbank's rates strategists feel tempted to try tactical shorts in German Bunds as yields are at their lowest levels since April and eurozone inflation could see another record high, rising above expectations.
In addition, U.S. core PCE--the Fed's preferred measure of inflation--and employment costs indices aren't set to point to subsiding inflation pressures.
The strategists suggest buying setbacks in Bunds.
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Any political news will likely put Italian government bonds under pressure and increase risk aversion from non-domestic investors, but relatively low issuance in August and low funding needs are likely to be supportive, said Societe Generale.
"The results of the early election scheduled for late-September will be key," SG said.
The supportive elements, meanwhile, could limit widening in 10-year BTP-Bund spread which rose due to politics and S&P's move to lower Italy's outlook to stable from positive.
Citi said Italy doesn't appear to be at risk of a rating downgrade despite S&P's move to lower the outlook, but the "upside rating momentum for Italy is clearly lost, unlike, say, for Greece or Ireland."
Both S&P and Fitch rate Italy at 'BBB' with stable outlook, while Moody's has a 'Baa2' rating with stable outlook.
"Rating downgrades still seem unlikely unless growth stalls or the new government departs significantly from the reform agenda," Citi said.
Italian politics remains "fast moving" following the resignation of Mario Draghi and a snap election being scheduled for Sept. 25, Citi added.
Energy:
Oil prices gained around 2% and are on course for a 5% weekly gain.
Brent crude has been choppy in recent days but appears to have stabilized around the $100 a barrel level. Prices might well remain at that level for the remainder of the year, said Natixis. It has forecast $110 a barrel for the third quarter and $105 a barrel in the fourth quarter.
Recessionary fears will weigh on prices and put off speculative investors, Natixis said. 2023 could see tightness return to the market as the EU's ban on Russian crude oil imports takes effect.
"Oil prices are likely to reaccelerate in 2023."
Metals:
Copper prices rose as risk assets gained in Europe on hopes that weak U.S. data would make the Fed ease off its hiking cycle.
Still, the red metal is on course for a 4.8% monthly decline. That would be its fourth straight monthly fall as fears about recession and a strong dollar have weighed on the metal.
"Bad news is good! Powell did say the next hike will be data-dependent; will this [U.S. GDP] be a leading indicator to a moderating Fed path?" said SPI Asset Management.
DOW JONES NEWSPLUS
EMEA HEADLINES
IAG Returns to Profit for First Time Since Pandemic
International Consolidated Airlines Group SA said Friday that it returned to profit in the second quarter for the first time since the pandemic started as demand recovered across all its airlines, and that this supported its outlook for a full year adjusted operating profit.
The airline group--which houses carriers British Airways, Iberia and Vueling, among others--said that operating profit for the second quarter was 293 million euros ($298.8 million) compared with an operating loss of EUR967 million the year before. The operating loss for the first half narrowed to EUR438 million from GBP2.04 billion for the first six months of 2021.
AstraZeneca Swung to 2Q Net Loss But Raises Full-Year Revenue Guidance
AstraZeneca PLC on Friday reported a swing to a second-quarter net loss after booking a large foreign-exchange charge in its accounts, but raised its full-year revenue guidance, and said it has named a new chairman-designate.
The Anglo-Swedish pharmaceutical giant said it now expects to report a low-20s percentage rise in total revenue for the year, up from previous guidance of a high-teens percentage. This was due to strong overall performance and better-than-anticipated Covid-19 medicine revenue, which is now expected to be flat compared with 2021. The company had previously guided for a low-to-mid-20s percentage fall.
Air France-KLM Shares Lifted by Strong 2Q, Upbeat View Despite Bottlenecks
Shares in Air France-KLM rose Friday after the Franco-Dutch carrier returned to profit in the second quarter and guided for a positive annual operating result for the first time since the Covid-19 pandemic.
At 0752 GMT, shares were up 6.1% at EUR1.36.
Standard Chartered Second-Quarter Profit Rose 6.5%
Standard Chartered PLC's second-quarter profit rose 6.5% compared with the same period a year earlier, thanks to stronger interest income, as it announced a new $500 million share buyback program.
The Asia-focused bank Friday posted second-quarter underlying pretax profit of $1.32 billion. Operating income rose 6.5% to $3.93 billion, driven by higher net-interest income as central banks increased interest rates aggressively to fight elevated inflation.
Renault Swung to Loss in 1H on Russia Business; Raises 2022 View
Renault SA posted a loss in the first half amid its withdrawal from Russia and the semiconductor shortage, but raised its targets for the full year.
The French auto maker said Friday that net loss for the period came in at 1.36 billion euros ($1.39 billion), compared with a profit of EUR354 million a year earlier. It unloaded its Russian business, valued at EUR2.2 billion, amid the country's invasion of Ukraine.
BNP Paribas Delivers Second-Quarter Earnings Beat as Revenue Jumps
BNP Paribas SA on Friday reported higher second-quarter earnings, helped by revenue increases in all its divisions as it took advantage of higher net interest income and fees.
The French lender said its net profit rose to 3.18 billion euros ($3.24 billion) from EUR2.91 billion in the same period a year earlier.
Eni 2Q Profit Jumps on High Commodity Prices, Strong Refining Margins
Eni SpA on Friday said that profit jumped in the second quarter of the year as performance benefited from the high commodity price environment as well as strong refining margins.
The Italian oil-and-gas major reported quarterly net profit of 3.82 billion euros ($3.88 billion) from EUR247 million in the same period a year earlier.
Hermes Hit New Margin High in 1H, But 2Q Sales Slowed Amid China Lockdowns
Hermes International SCA on Friday maintained its medium-term growth goal as first-half earnings soared on record profitability and despite headwinds from lockdowns in China.
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07-29-22 0559ET
