MARKET WRAPS
Stocks:
European stocks made solid gains on Friday as investors cheered fresh speculation that China may ditch its zero Covid policies, while they awaited the October U.S. jobs report.
On Friday morning, Zeng Guang, the former chief scientist at the Chinese Center for Disease Control and Prevention, said the country's dynamic zero-Covid policy will undergo "significant" changes, according to people familiar with the matter. He was speaking at a conference held by Citigroup.
Zeng said the peak rate of Covid testing in China has passed, and that 90% of tests will be eliminated. He also said the border between Hong Kong and mainland China will open in the first half of next year or even earlier, and the border reopening between the mainland and the rest of the world will follow.
The U.S. employment report, due at 1230 GMT, will offer a fresh read on the state of the labor market at a time of aggressive Federal Reserve interest-rate increases.
Economists surveyed by The Wall Street Journal estimate that employers added 205,000 jobs in October, down from 263,000 in September, with the unemployment rate holding at 3.5%. They see growth in average hourly earnings slowing to a year-over-year pace of 4.7%.
Craig Erlam, senior market analyst at OANDA said investors will remain on edge until the data is out.
"Not only was Powell's caveat [on Wednesday] unexpected and unwelcome by investors, the labor market remains extremely healthy which means today's report is likely to be red hot once more. If that doesn't turn out to be the case, investors may start to see the upside to the Fed's statements."
U.S. Markets:
Stock futures inched up, indicating Wall Street could break a four-day losing streak, though investors had one major hurdle to get through first--the nonfarm payrolls report. The employment market has remained strong this year in the face of high inflation and rapidly rising interest rates.
Bond yields rose for a fourth day, with the benchmark 10-year Treasury yield ticking up to 4.160% from 4.123% on Thursday.
Early Movers:
Coinbase Global posted a loss, as its main revenue driver-crypto trading-remains depressed in the wake of the market's crash. Its shares rose 7.6% premarket.
PayPal delivered an earnings beat but lowered its revenue outlook. Its shares slid 7.1% premarket.
Warner Bros. Discovery posted revenue below analysts' estimates and said it was speeding up the launch of a combined HBO Max/Discovery+ streaming service. Its shares slipped 3.9% premarket.
Block reported a loss after having broken even a year earlier, but the results were far better than analysts had expected. Its shares soared 14% premarket.
Forex:
Friday's jobs data could cause the dollar to build on its gains since Wednesday's Fed rate rise, prompting investors to increase expectations for where rates will peak, ING said.
"We expect today's release to leave markets still searching for a higher Fed terminal rate, ultimately keeping the dollar bid." A "decisive break" above 113.00 in the DXY dollar index looks likely, either Friday or in the coming days, ING said.
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Sterling remains "very vulnerable" in the near-term due to a weak U.K. economic outlook, MUFG Bank said.
"The U.S. and even the eurozone look set to perform better than the U.K. and that economic underperformance relative to the most of the rest of the G10 will likely be reflected most easily through GBP depreciation," MUFG said.
The Bank of England's grim forecasts at Thursday's meeting don't even incorporate the fiscal consolidation expected to be announced in the government's autumn statement on November 17. MUFG said GBP/USD could soon fall below 1.1000.
Bonds:
Eurozone government bond yields were marginally higher, absorbing news about the trajectory of future interest rate rises by global central banks, while awaiting U.S. payrolls data.
"As markets are getting used to prospects of 5% Fed funds rates next year, they may still question the slower pace to get there," Commerzbank said. "Today's payrolls should hardly provide relief."
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Citi said that risks have increased that the Fed and the European Central Bank have opted for a slower pace of interest-rate increases to a higher terminal rate, creating a mildly bearish backdrop for global rates.
"The overriding [bearish] message for global rates this week has been that while the acute phase of the synchronised global hiking cycle may be nearing an end, allowing the pace of hikes to slow, the destination remains highly uncertain with risks tilted to the upside," Citi said.
Citi's year-end target for the 10-year Bund yield is 2.35%.
Societe Generale said the yield could approach 3% as the ECB's tightening process isn't over yet.
ECB terminal rates have again been repriced higher, especially after the Fed meeting and are now back above 3%, SocGen said.
Energy:
Oil prices rose around 2% as fresh rumors surfaced that China could soon move away from the strict lockdown restrictions it has imposed and which have dragged on the world's second largest economy.
SPI Asset Management said the sharp moves being driven by mere rumors point to how significant the reopening of the Chinese economy would be.
"Markets will pre-position very early for a China reopening as getting on this bandwagon will be the most in-demand ticket in town."
Metals:
Prices of base metals and gold jumped after news in Asia of a possible Chinese reopening led Chinese equities and the yuan higher, with Marex noting increased copper buying on renewed optimism.
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