MARKET WRAPS
Watch For:
Canada GDP for July; U.S. Personal Income & Outlays for August; U.S. ISM Report on Business Manufacturing PMI for September; U.S. U. Michigan Final Consumer Survey for September
Opening Call:
Stock futures slipped Friday, putting the S&P 500 on track for its worst week in almost a year as investors weighed the prospect of a spell of higher inflation and slower economic growth.
Overseas markets retreated. The Stoxx Europe 600 dropped 0.9%, led lower by shares of banks, auto makers and basic-resource companies. In Asia, Japan's Nikkei 225 lost 2.3% and South Korea's Kospi fell 1.6%. Markets in Hong Kong and mainland China were closed for a holiday.
A bevy of factors has prompted investors to become more cautious after a rally in stock markets for much of the year. The Federal Reserve and other global central banks have tilted in recent weeks toward reining in pandemic-era stimulus measures.
Surging prices for natural gas in Europe and Asia have raised concerns that the bout of inflation will last longer than many money managers had expected. Meantime, rising energy costs are expected to take a toll on growth in the world economy.
"The market's focus has turned to the stagflation narrative with what's been going on in natural gas," said Daniel Morris, chief market strategist at BNP Paribas Asset Management.
Investors also pointed to lingering worries over property giant China Evergrande Group and whether Congress can resolve its battles over U.S. spending plans. House Democrats delayed plans to vote on a roughly $1 trillion infrastructure bill Thursday, as they came up short on reaching agreement around a separate social policy and climate package.
Stocks to Watch:
In premarket trading, theater chain and meme stock favorite AMC Entertainment rose 2% after announcing the repurchase of debt securities that lowered its overall interest costs.
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Steel-company executives are urging steel-friendly members of Congress to resist pressure from steel-consuming businesses for the repeal of the 25% duty on imported steel. "Our industry has performed. All we can ask is help us create that level playing field going forward," said Steel Dynamics CEO Mark Millett.
The executives served up harsh criticism of Canada and the EU's efforts to lower carbon emissions from their steel industries by providing them with grants and other aid. "We use our own money. They use government money," said Lourenco Goncalves, CEO of Cleveland-Cliffs. "They will have an advantage that is totally unfair."
Forex:
The dollar's steady appreciation this week looks set to take a break as investors book profits, said Unicredit.
"The DXY dollar index has slightly receded from peaks of around 94.50 and profit taking may be the theme today, even in the face of a daily agenda that includes consumer price inflation in the eurozone and personal income/personal consumption expenditure index numbers in the U.S.," said Unicredit analysts.
The euro was little moved by data on Thursday that showed German inflation hit 4.1% in September, its highest level for 29 years, after Christine Lagarde on Tuesday warned against overreacting to a temporary spike in inflation.
And ING said the currency may struggle to recover as the market remains reluctant to price in monetary policy normalisation by the European Central Bank even as inflation accelerates.
"Considering the dollar's good momentum, EUR/USD still looks more likely to test 1.1500 rather than to rebound to the 1.1700 area in the coming days," said ING forex strategist Francesco Pesole.
Bonds:
The recent spike in U.S. and German bond yields can be explained by the Federal Reserve's confirmation it will formally announce the start of tapering in November, said NN Investment Partners.
"It has been our view for some time that more clarity on the tapering front would eventually push yields higher, as this would trigger investors to price in more monetary policy normalization beyond tapering."
The asset management firm said that data on the soft side both in the U.S. and Europe suggest that supply constraints justify a more cautious growth outlook.
Societe Generale remains short duration on Treasurys and German Bunds, more so on the former. The European Central Bank appears less concerned about medium-term inflation risks than the Bank of England and the Fed, with ECB President Christine Lagarde being "happy to be the laggard when it comes to be policy normalization," said Societe Generale.
The bank's strategists thus favor shorts in Treasurys over Bunds, and see a quicker underperformance of the "belly"--the intermediate segment--of the U.S. curve relative to the euro curve.
"The belly of the EUR curve should only see limited moves in the absence of even higher medium-term inflation pricing, for which there is little justification at present."
Commodities:
Crude futures were lower in calmer trading, with Chinese markets closed due to the week-long public holiday there.
Even so, "if China's state-owned energy companies have indeed been instructed to "do whatever it takes" to secure winter energy supplies, it is unlikely that oil prices can fall very far," said Oanda's Jeffrey Halley.
OPEC+ meets on Monday but analysts aren't expecting the alliance to do much to address the supply crunch except ratify its pre-existing plan to ease cuts by another 400,000 barrels a day.
Copper prices were slightly firmer in London trading but remained on course for a 3.4% weekly loss, with worries about Evergrande and Chinese power shortages, compounded by rallying bond yields, having sparked Thursday's selloff.
"It would be reasonable to describe yesterday as a perfect storm for the metals," said Malcolm Freeman, CEO of Kingdom Futures.
Separately, Chile's statistics agency said Thursday that copper production dropped 4.6% year-on-year due in part to labor strikes at mines.
TODAY'S TOP HEADLINES
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Five9 issued a news release saying that the deal failed to gain enough votes from its shareholders and that the merger plan had been "terminated by mutual agreement" between the two companies.
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The two companies have entered into a nonbinding agreement for Lordstown to sell the facility and property, with the exception of certain assets, for a purchase price of $230 million, said Lordstown Motors Chief Executive Daniel Ninivaggi.
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Winter Is Coming. Should the U.S. Hang On to Its Natural Gas?
(MORE TO FOLLOW) Dow Jones Newswires
10-01-21 0554ET
