MARKET WRAPS
Watch For:
Germany industrial production index; France trade, balance of payments; Italy retail sales; UK Halifax house price index; trading updates from BMW, Repsol, SAS, Finnair
Opening Call:
European shares may rise Friday, as attention turns to the U.S. jobs report later today. In Asia, stock benchmarks tracked Wall Street lower; the dollar steadied; Treasury yields largely rose; while oil and gold futures advanced.
Equities:
European shares may push higher at Friday's open after retreating Thursday following strong U.S. data.
Despite long-running fears that the economy is headed for a recession, economic data continues to show a resilient U.S. economy. That has raised concerns that the Federal Reserve, which will hold its next policy meeting at the end of this month, will hold interest rates higher for longer than investors had hoped as it seeks to curtail inflation.
The Institute for Supply Management said Thursday that its index of U.S. services activity rose to 53.9 in June from 50.3 in May.
"I don't see how inflation falls that much when these growth numbers are that strong," said Christian Chan, chief investment officer of AssetMark. "You have to think about what the logical policy response might be."
Monthly ADP private payrolls data added more fuel to investors' concerns about the Fed's plans for interest rates after showing the U.S. economy created 497,000 new jobs in June, nearly double the number created in May and far surpassing economists' forecast for 220,000.
ADP numbers tend to be taken with a grain of salt. They haven't served as a reliable guide to official jobs figures. ADP recently retooled the series and has stated that it isn't meant to track official data. The U.S. Labor Department's June jobs report is due later today.
The blowout ADP reading, however, was impossible for investors to ignore. It sent the yield on the 10-year Treasury note surging to its highest level since early March as investors bet that the report would encourage the Fed to be even more aggressive in raising its policy interest rate.
Comments from Dallas Federal Reserve Bank President Lorie Logan added more heft to this perception, as she called for the central bank to do more to tackle inflation.
After today's jobs report, investors will turn their attention toward inflation data for June and the start of second-quarter earnings season next week.
"The key factors for stock prices are inflation, interest rates and earnings. Right now, there's uncertainty about all three inputs," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
Forex:
The U.S. dollar is little changed in Asia ahead of the U.S. nonfarm payrolls report due later in the day. However, a stronger-than-expected report should lift USD, DBS Group Research said.
DBS expects nonfarm payrolls to exceed consensus estimates for the addition of 230,000 jobs in June, adding that the odds for the USD Index to rise more than 0.5% on the data are the best since February.
Bonds:
Treasury yields extended gains in Asia after the policy-sensitive two-year yield rose following U.S. private-sector jobs data.
Markets are pricing in a 92.4% probability that the Fed will raise its policy interest rate by 25 basis points to a range of 5.25%-5.5% on July 26, according to the CME FedWatch Tool. There is also a 27.7% chance of another increase of the same size at the Fed's September meeting. The central bank is not expected to take its fed-funds rate target back down to around 5% until next year.
"Although rates are currently paused, the Fed has commented it expects additional rate hikes to resume shortly in its quest to eradicate excess inflation," said Chris Shuba, chief executive of Helios Quantitative Research.
"This leaves both equity and fixed-income markets in a no-man's land as the economy, led by strong headline jobs numbers, continues to pick itself off the floor."
"From our analysis, there are two major themes in fixed income that are statistically relevant," Shuba said. "First, both the inverted shape of the yield curve and the trend of inflation data point to adding duration. Historically, the Fed will reduce rates in these environments -- even if in the short-term rates may increase by a bit."
"Second, during the [Silicon Valley Bank] crisis, credit spreads expanded quickly. Although it's taken a few months, spreads are now narrowing. This creates an opportunity to overweight high-yield" and reduce rate exposure through Treasurys.
Energy:
Oil futures rose early Friday amid signs of supply tightness.
"Crude oil prices were relatively unchanged, as the broader risk-off sentiment was offset by signs of tightness in the market," ANZ said.
The Energy Information Administration on Thursday reported that U.S. commercial crude inventories fell by 1.5 million barrels for the week ended June 30.
Metals:
Gold futures rose slightly in Asia amid renewed concerns about the Fed's further tightening following strong U.S. data overnight, but may remain above the $1,900/oz level.
"Gold looks like it might be able to stabilize above the $1900 level even if Wall Street starts to think that the September FOMC will be a live meeting," said Edward Moya, senior market analyst at Oanda.
-
Copper advanced due to position adjustments ahead of key U.S. economic data, particularly the nonfarm payrolls report.
Going into 2H, Bank of America's global commodity research team prefers copper among base metals, partially because the so-called 'green revolution' has offset the demand drag from housing.
Also, additional policy support from China's government should boost the base metal in 2H, BofA added.
-
Chinese iron ore futures rose slightly, marking an improvement as the steel-making ore's prices have retreated in recent sessions.
Still, analysts advised that investors stay cautious and warn of potential further weakness in 2H. Steel production is likely to continue cooling in coming months as the seasonal peak is expected to end soon, while producers are also scheduling more facility maintenance plans that could disrupt output, Funeng Futures said.
Meanwhile, the market is growing more worried about potential steel production restriction policies from Beijing, which would further weigh on iron-ore trading sentiment and buying interest.
TODAY'S TOP HEADLINES
What It Would Take to Bring the Job Market Into Balance
America's job market looks as if it is coming into better balance, but it might only be halfway there.
The Labor Department on Thursday reported that there were a seasonally adjusted 9.8 million unfilled job openings in the U.S. on the last day of May, down from April's (upwardly revised) 10.3 million, and well below the record 12 million posted in March of last year.
Tech Stocks Have Recovered, But That Hasn't Helped Startups
Renewed vitality among large technology firms has yet to re-energize tech startups and their investors, who in recent months continued to put funding deals on hold and push back public-market debuts, according to the latest market data.
Over the past year, venture-capital investors, company founders and analysts said the prolonged slump across the startup world would start to ease once public tech companies regained their footing, putting behind the market declines, budget cuts and layoffs of 2022.
U.S. to Send Cluster Munitions to Bolster Ukraine's Fight Against Dug-In Russians
WASHINGTON-The Biden administration plans to send cluster munitions, which strew small bomblets over a wide area, to Ukraine to strengthen its hand in a high-stakes offensive against Russian forces, senior U.S. officials said.
The White House has agreed to grant a waiver under the U.S. arms export laws to send the weapons, formally known as dual-purpose improved conventional munitions, or DPICM.
Russia Closes Finnish Consulate in Latest Salvo Against Helsinki
Russia said it would close a Finnish diplomatic outpost in the latest escalation of tensions between the two neighbors just months after the Nordic nation became the newest member of the North Atlantic Treaty Organization.
Russia's Foreign Ministry said Thursday that as of Oct. 1, Finland could no longer operate its consulate in St. Petersburg, the imperial-era capital that is less than 200 miles from Helsinki. The closure and expulsion of nine diplomats was meant as retaliation for Finland's move to deport what it said were Russian spies earlier this year.
Israel Shells Southern Lebanon Amid Fears of Multifront Escalation
Israel shelled a village in southern Lebanon on Thursday after explosions were heard in a disputed border area, raising fears of a multifront escalation between Israeli forces and Palestinian militants in Lebanon, Syria and Gaza.
Tensions are high after Israel conducted a deadly two-day military operation in the occupied West Bank earlier this week that killed 12 Palestinians and one Israeli soldier. The incursion into Jenin refugee camp, which involved drone strikes and heavy construction vehicles, marked a more aggressive Israeli approach in the West Bank since an uptick in violence last year. By confiscating weapons and arresting terrorism suspects in the operation, the Israeli military said it aimed to make it easier to operate in Jenin going forward.
Elon Musk's SpaceX Now Has a 'de Facto' Monopoly on Rocket Launches
Satellite operators and government agencies doing business in space are increasingly dependent on one company to help them reach orbit: Elon Musk's SpaceX.
SpaceX has cornered much of the rocket-launch market, with a proven fleet of reusable rockets that can fly at a pace that rivals can't match-and at lower prices. The company's rockets powered 66% of customer flights from American launch sites in 2022, and handled 88% in the first six months of this year, according to launch data compiled by Jonathan McDowell, an astrophysicist who tracks space activity.
The AI Boom Isn't Breaking the Memory-Chip Slump-Yet
(MORE TO FOLLOW) Dow Jones Newswires
07-07-23 0016ET
