MARKET WRAPS
Watch For:
U.S. CPI for November; U.S. U. Michigan Preliminary Consumer Survey for December.
Opening Call:
Stock futures and bond yields rose ahead of fresh inflation data that could influence the Federal Reserve's timeline for reducing stimulus measures.
Economists surveyed by The Wall Street Journal expect that U.S. inflation hit an almost four-decade high in November. Price pressures have been driven by strong demand and supply-chain woes related to the pandemic, as well as higher energy prices.
The Federal Reserve will hold a two-meeting meeting next week at which it may provide more details about how it plans to wind down its bond-buying program and when it plans to begin raising interest rates. Investors are waiting to see whether officials signal a faster end to stimulus than currently expected and how they characterize inflation.
"What we see is this lack of direction [in markets]: one day going up, one day going down and today what we are really looking to see are the U.S. inflation numbers," said Frank Øland Winther, global chief strategist at Danske Bank.
In premarket trading, Oracle shares gained more than 10% after the database giant reported second-quarter results that beat estimates. Broadcom shares added more than 5% after the company posted better-than-expected results, provided strong January-quarter guidance, raised its dividend and announced a stock-repurchase program.
Overseas, the pan-continental Stoxx Europe 600 fell. Shares of auto maker Daimler fell more than 15% as its spun-off trucks business, Daimler Truck Holding, began trading in Germany on Friday.
Major indexes in Asia closed lower. China Fortune Land Development's shares rose 10% in Shanghai trading after the indebted property developer said creditors had approved a debt restructuring plan, potentially throwing it a lifeline. Concerns over China's real-estate sector have weighed on markets this year, and this week, Fitch Ratings said China Evergrande Group and a second big property developer, Kaisa Group, had defaulted after missing U.S. dollar bond payments.
Forex:
The dollar is likely to get a boost if U.S. inflation data is strong, as the market expects, said UniCredit.
Strong data would add to expectations of forthcoming monetary tightening by the Fed. Attempts to weaken the dollar over the course of this week have "proved short-lived" ahead of Friday's inflation figures, UniCredit said.
Confirmation of continuing upward pressure on prices would keep the dollar rising, and even if inflation figures aren't as high as expected, it would unlikely hurt the dollar too much, it said.
U.S. annual CPI is forecast to rise 6.7% in November, according to a consensus in a Wall Street Journal poll.
The euro's weakness against the dollar will persist unless the European Central Bank delivers a "hawkish surprise" with a tighter policy stance at its December 16 meeting, ING said.
A widening of eurozone-U.S. short-term rate differentials is a major driver of EUR/USD weakness so the pair may prove more sensitive to any ECB surprise, which could come through the timing of unwinding asset purchases or staff projections, ING forex strategist Francesco Pesole said.
"If, instead, we see no major surprises by the ECB, and given the Fed [December 15] meeting risks prompting another spike in U.S. short-term yields, we think EUR/USD may be set for another bad week."
Sterling fell after data showed the U.K. economy grew by a weaker-than-anticipated 0.1% month-on-month in October. Economists polled by the WSJ expected 0.3% growth.
The data will give the Bank of England "further cause for hesitation" in raising interest rates at the December 16 meeting, UBS Global Wealth Management economist Dean Turner said.
The pound has been weak in recent days as investors reassess the chances of a rate rise this month but this is unjustified, he said.
"Although the Bank is likely to delay raising rates, hikes are still coming," he said. "We expect this to drive the pound higher in the coming months, especially against the euro."
Bonds:
In bond markets on Friday, the yield on the 10-year Treasury note ticked up to 1.518%, from 1.486% Thursday.
The Fed's pivot toward fighting inflation likely means that it will announce an acceleration in its tapering process at next week's FOMC meeting, putting tapering on track to conclude by March 2022, said Ellen Gaske, lead economist for G10 economies, global macroeconomic research at PGIM Fixed Income.
The accelerated tapering potentially paves the way for one interest rate rise of 25 basis points in the second quarter of 2022, another in the third quarter of 2022 and three in 2023, she said. This would bring the terminal rate to around 1.5%, slightly less than the 1.7% that Fed fund futures are pricing in, she said.
The ECB will aim to preserve a high degree of flexibility in asset purchases and not indicate too swift a tapering as it intends to reduce net asset purchases in 2022 and avoid the risk of unwarranted government bond-spread widening, Societe Generale said.
SocGen's central scenario on asset purchases sees close to EUR100 billion unused in the ECB's Pandemic Emergency Purchase Programme by March 2022, which could be used to "stabilize" eurozone government bond markets, if needed.
However, such measures aren't sufficient to prevent continuing widening bias on spreads, it said, targeting a 10-year BTP-Bund yield spread of 140-150 basis points in 1H 2022 and 170 basis points in 2H 2022; the current level is 134 bps, according to Tradeweb.
Commodities:
Oil prices edged higher, stabilizing after a drop driven by renewed concerns about the Omicron variant. Brent is heading for its biggest weekly advance since August having rallied on the back of signs Omicron might not put as much of a dent in oil demand as first seemed to be the case.
Traders and analysts remain on edge about potential travel disruption, particularly because the oil market was expected to swing into over supply in the first quarter of 2022 even before Omicron's arrival.
"Demand will decline for seasonal reasons while supply will increase noticeably," said Commerzbank analyst Carsten Fritsch.
Gold edged lower ahead of upcoming U.S. inflation data.
TODAY'S TOP HEADLINES
U.S. to Bar Investment in Chinese AI Giant, Considers Banning Key Exports to Top Chip Maker
U.S. officials plan to ban American investment in Chinese artificial intelligence giant SenseTime Group Inc. and are looking to block China's largest chip maker from buying U.S. manufacturing tools, in a broadening Biden administration effort against Chinese technology firms.
SenseTime, a leading developer of facial recognition technology, on Friday will be placed on a Treasury Department blacklist of Chinese companies that support China's military, people familiar with the matter said.
Cvent Goes Public After Retooling for Era of Virtual Events
Cvent Holding Corp. on Thursday began trading on Nasdaq following a digital makeover aimed at retooling the 22-year-old event-management software company for the age of video conferences and virtual meetings.
China Fortune Land Shares Gain as Creditors Back Debt Restructuring Plans
Shares of China Fortune Land Development Co. rose after it said a group of creditors approved a debt restructuring plan, potentially throwing the indebted property developer a lifeline in the wake of defaults on billions of dollars of bond debt this year.
The Beijing-headquartered company's A-shares rose 10% in early trade Friday, the daily upward limit on the Shanghai exchange. That took the stock to its highest level in more than a month, although it is down about 70% for the year on a series of defaults and worsening sales amid tightening regulation of the property market in China.
U.S. Inflation Likely Hit a 39-Year High in November
U.S. inflation likely reached a nearly four-decade high in November, as strong consumer demand collided with pandemic-related supply constraints.
Economists surveyed by The Wall Street Journal estimate the Labor Department will report the consumer-price index-which measures what consumers pay for goods and services-rose 6.7% in November from the same month a year ago. That would mark the fastest pace since 1982 and the sixth straight month in which inflation topped 5%.
U.S. to Bar Investment in Chinese AI Giant, Considers Banning Key Exports to Top Chip Maker
U.S. officials plan to ban American investment in Chinese artificial intelligence giant SenseTime Group Inc. and are looking to block China's largest chip maker from buying U.S. manufacturing tools, in a broadening Biden administration effort against Chinese technology firms.
SenseTime, a leading developer of facial recognition technology, on Friday will be placed on a Treasury Department blacklist of Chinese companies that support China's military, people familiar with the matter said.
Oil Price Swings Scramble Inflation Outlook
A loss of momentum in oil markets has prompted investors and traders to dial down bets on how fast inflation will run in the coming years.
After rising for much of 2021 on the back of a recovery in economic activity, oil prices have stalled since late fall. Among the catalysts: President Biden said the U.S. and other big energy consumers would release crude from strategic reserves to tame fuel prices. Travel restrictions designed to contain the Omicron variant of coronavirus then cut demand for jet fuel.
Derby's Take: As Fed Meeting Looms, Yield Curve Offers Complicated Message
As the Federal Reserve heads toward a pivotal policy meeting next week, the bond market's yield curve is throwing out some tricky signals.
(MORE TO FOLLOW) Dow Jones Newswires
12-10-21 0604ET
