MARKET WRAPS
Watch For:
Eurozone PPI; Germany trade; France industrial production index; no major corporate trading updates expected
Opening Call:
European shares look poised for slight declines on Friday, retreating after gains on bets that the Fed could slow its pace of interest-rate rises this month. In Asia, stock benchmarks mostly fell; the dollar weakened; Treasury yields rose; while oil wavered and gold declined.
Equities:
Stock futures point to declines at Friday's open after mostly gaining Thursday, as traders await the U.S. jobs report later today.
U.S. stocks turned down on profit-taking after Wednesday's big jump, said CMC Markets, while the ISM data showing American factory activities contracted to a 30-month low in November underlined expectations the Fed has room to slow down the pace of rate increases.
"This peak inflation, softer growth narrative was reinforced by the ISM manufacturing survey which fell into contraction territory for the first time since May 2020, while prices paid fell to 43, and employment also contracted at 48.4," he wrote.
Earlier, the personal-consumption expenditures index rose a modest 0.3% in October, adding another piece of evidence that points to slowly easing price pressures. The core gauge that strips out volatile food and energy costs, rose 0.2% last month, below the consensus estimate of 0.3% collected from economists by Dow Jones.
"We're watching the inflation data closely and the most important inflation report of the year is going to be the CPI report on December 12, which could confirm the downtrend in inflation, which was first observed on November 10 (and which ignited a 5.5% single-day gain in the S&P 500)," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
"On the other hand, if inflation surprises to the upside on December 12, then all bets are off and we could see a sell-off into year-end -- especially if the Fed decides to raise by 75 bps the next day, instead of the 50 bps which everyone is counting on," he added.
Forex:
The dollar declined early Friday, but haven demand could provide support in the coming months.
"Renewed optimism in global markets - in large part tied to hopes for a Fed 'pivot' - pushed the US dollar down against most major currencies last month," Capital Economics said.
"But with a global recession on the horizon, we continue to think that the dollar rally will resume as 'safe-haven' demand intensifies in the coming months."
They see the U.S. dollar strengthening further against most other currencies over the coming quarters as the Fed maintains a hawkish stance, global growth slows and risk appetite remains fragile.
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The euro has been lifted by an easing in gas prices and hopes Germany may face reduced recessionary risks, but this recovery may be short-lived, Rabobank said.
"In spring and summer 2023 Europe could be struggling to refill its gas storage facilities at today's prices," Rabobank said. "A re-opening of China will increase the competition for global liquefied natural gas supplies."
EUR/USD could drop back through parity next year as the next wave of the gas price crisis hits, the bank said.
Bonds:
Treasury yields rose in Asia after falling by the most in three weeks overnight after the Fed's preferred inflation gauge showed price pressures easing.
The personal-consumption expenditures index rose a modest 0.3% that month, and the yearly rate of inflation slowed to 6% in October from 6.2% in the prior month.
The report came on top of a smaller-than-expected rise in October's consumer-price index, and was enough to push Treasury yields lower across the board on Thursday as traders reduced the likelihood of another 75-basis-point rate hike by the Fed on Dec. 14.
On Thursday, New York Fed President John Williams said forward-looking indicators are showing signs that inflation might be turning. Meanwhile, Fed Governor Michelle Bowman said the U.S. central bank will continue to lift its benchmark interest rate in "coming meetings," and "we still have a lot of work to do."
Energy:
Oil prices wavered in Asia, as investors continue to mull over growing fears of a U.S. recession and more signs that China is easing its Covid-19 restrictions.
"While we shouldn't expect a dramatic shift in policy from the leadership, particularly before the March Congress, any modest softening in its Covid-zero policy will and should be welcomed," said Oanda.
"The approach has been extremely damaging to growth and confidence and the protests highlight how public opinion towards it is changing," Oanda added.
"[T]he one glaring problem the oil market faces is the anticipated run of weaker U.S. economic data, which is the price to pay for aggressively fighting inflation," SPI Asset Management said.
Read: Oil-price volatility complicates Sunday's OPEC+ decision on production levels
Metals:
Gold declined early Friday after posting the largest one-day gain overnight in more than two years to settle above $1,800 an ounce.
"Recession risk and the end of Fed rate hike cycle are both supportive for gold prices," Citi said, adding that China's reopening should benefit demand for metals.
Citi expects gold prices to average around $1,900/oz by 4Q 2023.
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Copper prices retreated from a recent rally on the back of a brightening China demand outlook.
ANZ said demand expectations are likely to remain optimistic in the coming months, as investors look forward to a postpandemic reopening in China amid Beijing's signals for easing pandemic curbs.
Tight supplies amid production disruptions would offer an extra boost to prices, ANZ added.
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Chinese iron-ore futures gained amid signs that fundamentals are improving. Hot-metal production has turned from decline to growth, while iron-ore imports from Brazil and Australia have softened, Everbright Futures said.
Prices of the raw material are also supported by expectations of restocking needs ahead of the Lunar New Year in January, Everbright added.
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Fed's Top Banking Regulator Signals Tougher Bank-Capital Rules
WASHINGTON-The Federal Reserve's new regulatory chief on Thursday signaled plans to beef up big-bank capital requirements, potentially revisiting financial rules that were eased during the Trump administration.
Michael Barr, the Fed's vice chairman for banking supervision, said that the central bank is still conducting a broad review of its capital requirements but suggested the overall requirements appeared to be lower than they ought to be.
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Austan Goolsbee, who served as a top economic adviser to former President Barack Obama, will become the next president and chief executive of the Federal Reserve Bank of Chicago, the bank said Thursday.
Mr. Goolsbee, 53, is a professor of economics at the University of Chicago's Booth School of Business. He was chair of the White House Council of Economic Advisers from 2010 to 2011.
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The Commerce Department on Thursday reported that its measure of consumer prices, which is the Federal Reserve's preferred inflation measure, rose 0.3% in October from a month earlier. That put it 6% above its year-earlier level, down from a June year-over-year peak of 7%, and the slimmest gain since last December.
China Plans Covid Vaccination Drive for the Elderly in Bid to Ease Pandemic Controls
HONG KONG-China is planning a Covid-19 vaccination campaign for the elderly in December and January, part of its effort to be able to ease its zero-Covid policy, public-health officials familiar with the plan said, as outbreaks hit records and protests denouncing rigid pandemic controls spread.
China aims to inoculate 90% of people aged 80 and above with at least one shot by the end of January, said the officials, who work at local branches of the Chinese Center for Disease Control and Prevention and received instructions from Beijing. That rate is currently at 77%, according to government data.
Russia Says Strikes on Ukraine's Infrastructure Aimed at Slowing Delivery of Foreign Arms
Russia's foreign minister said that waves of Russian strikes on Ukraine's civilian infrastructure that have left six million people without power were intended to slow the delivery of foreign weapons to Ukraine.
"The infrastructure that is now under attack is the infrastructure that provides the combat potential of the Ukrainian armed forces, the nationalist battalions," Russian Foreign Minister Sergei Lavrov said on Thursday, according to Russian state media.
Layoffs Hit White-Collar Workers as Amazon, Walmart, Others Cut Jobs
Recent rounds of layoffs at large U.S. companies mark a departure from the usual pattern as executives navigate fears of an economic slowdown: This time, white-collar workers have been among the first and hardest hit.
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12-02-22 0016ET
