MARKET WRAPS
Watch For:
E.U. Foreign trade, ECOFIN meeting of EU finance ministers; Germany WPI; trading updates from Sberbank, EQT, Ashmore Group, Burberry Group, DCC
Opening Call:
European shares may track lower at Friday's open. In Asia, stock benchmarks advanced; the dollar weakened; Treasury yields were little changed; while oil and gold futures gained.
Equities:
European futures were lower early Friday as investors parse Fed officials' comments and brace for the start of the earnings season.
Wall Street gained on Thursday after investors received data for a second consecutive day showing that inflation is moderating to its slowest pace in years.
The Labor Department reported the producer-price index rose in June at a weaker clip than economists expected. That followed Wednesday's report that showed consumer inflation fell to multiyear lows.
"The disinflation narrative is in full effect," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
For investors, that means "buying stocks and bonds is the best course of action," he said, contrary to last year when both suffered from the Federal Reserve's interest-rate campaign.
However, Fed officials cautioned against reading too much into the data yet.
Federal Reserve Board Gov. Christopher Waller said Thursday he wasn't swayed by June's benign consumer inflation data and wants the central bank to go ahead with two more 25-basis-point rate hikes this year.
While the cooling of CPI data for June was welcome news, "one data points does not make a trend," he said.
San Francisco Fed President Mary Daly also said that the Fed was still focused on raising interest rates.
"It is really too early to declare victory on inflation," Daly said, in an interview on CNBC.
The June data was very positive and it would be good if it was a downward trend, but Daly said she was in a "wait-and-see" mode.
Amanda Agati, chief investment officer of PNC Asset Management Group sees potential for a 10% to 15% correction in stock prices from here but added that there's room for optimism: Any recession is likely to be shallow, she said, and markets will take off once investors feel corporate earnings are nearing a trough.
Wall Street will be focusing on second-quarter results from the six largest banks over the next few days, with JPMorgan Chase, Citigroup and Wells Fargo slated for Friday morning.
Earnings from UnitedHealth Group, a healthcare industry bellwether, are also on tap for Friday.
Forex:
The dollar was slightly lower in Asia.
Dollar weakness may extend because the same factors that weighed on the inflation report look likely to be softer still in coming months, Goldman Sachs said.
It expects emerging market currencies, particularly the Mexican peso and the Brazilian real, to benefit, as well as the yen and other currencies linked to rate-sensitive economies.
Other gainers would be "pro-cyclical G10 currencies that still have work to do on the domestic inflation picture," including the pound, it said.
However, "overall dollar depreciation should be shallower and more subdued than after other peaks."
Read: Deutsche Bank currency guru says it's 'time to sell the dollar' as greenback sees longest losing streak since 2021
Bonds:
Treasury yields were little changed after declining Thursday amid signs of cooling inflation.
Bank of America said the consumer price data pointed to "a very benign outlook for US inflation already priced by the markets," one that "reduces Fed risks and increases the chances that July will be the last hike."
Markets were pricing in a 92.4% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25%-5.5% on July 26, according to the CME FedWatch tool.
However, the chances of another 25 basis point hike in September were just 11.1%, down from about 27.5% a week earlier.
The central bank is expected to take its fed funds rate target back down to around 5% or lower next year.
The disinflation narrative is in full effect with less-than-expected PPI numbers today following on the heels of lower-than-expected CPI numbers, said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
"It's likely that rates stay at this level for an extended period of time (e.g. the Fed raises rates once or twice more this year and then doesn't cut them for 6-12 months), so investors may have limited price appreciation on their bonds, but the much higher yield can provide a very strong complement to their equity positions, which should be able to gain in value as long as the economy stays out of recession."
Energy:
Oil futures rose early Friday amid improved risk appetite.
This sentiment has been facilitated by supply outages which are likely to tighten the physical market, ANZ Research said.
Disruptions are hitting production at El Feel and some other oil fields in Libya amid protests there, it said, citing media reports.
This comes amid signs that recent reductions in supply from Saudi Arabia and Russia were having an effect, it added.
"With less supply from OPEC+ during the demand-heavy summer months, we expect larger oil inventory declines to become visible and support oil prices," said Giovanni Staunovo, a commodity analyst at the Swiss bank.
Metals:
Gold futures were steady in Asia, supported by data released overnight that showed U.S. producer-price index rose in June at a slower-than-expected pace, boosting prospects that the Fed's rate-increase cycle may soon be approaching an end.
"A tame U.S. inflation report has the marketplace thinking the Federal Reserve may be about done raising interest rates. That's bullish for commodity markets, including the metals," said Jim Wyckoff, senior analyst at Kitco.
The recent decline in gold price is likely to have finished, now that markets have substantially scaled back their expectations of further U.S. rate increases, Commerzbank said.
Commerzbank sees some further upside potential for gold prices toward the year-end.
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Copper edged higher in Asia, buoyed by a risk-on mood.
Optimism in China's property sector together with the country's better-than-expected credit data have boosted base-metal prices, said TD Securities.
The softer-than-expected U.S. inflation data have added further "fuel to the fire" as markets adopt a risk-on tone, it said.
The slew of bullish news has prompted a round of covering of short copper positions, it added.
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Chinese iron-ore futures extended gains early Friday, buoyed by cooling inflation in the U.S. and optimism over Beijing's supportive measures aimed at reviving the property sector announced earlier this week.
Commodity prices advanced across the board after bets rise that the Fed may be near the end of its rate-hike cycle, Nanhua Futures said.
TODAY'S TOP HEADLINES
Fed's Waller, unimpressed by inflation data, calls for two more rate hikes this year
Federal Reserve Board Gov. Christopher Waller said Thursday he was not swayed by June's benign consumer inflation data, and said he wants the central bank to go ahead with two more 25-basis-point rate hikes this year.
"I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target," Waller said in a speech to bond-market experts, known as The Money Marketeers of New York University.
Fed's Daly says it is 'too early to declare victory on inflation'
The Federal Reserve is still focused on raising interest rates despite the good news from June's inflation readings, said San Francisco Fed President Mary Daly on Thursday.
"It is really too early to declare victory on inflation," Daly said, in an interview on CNBC.
St. Louis Fed President James Bullard Steps Down
Federal Reserve Bank of St. Louis President James Bullard, one of the most vocal advocates over the past two years for stronger moves to fight inflation, resigned as the bank's leader on Thursday to become the dean of Purdue University's business school.
Bullard said he would serve as a senior adviser at the bank until next month but will recuse himself from any involvement with monetary policy. He will start his position at Purdue on Aug. 15.
U.S. stocks just reached another market milestone. Here's how the S&P 500 could climb even higher.
The S&P 500 index reached 4,500 on Thursday for the first time in more than 15 months. It's the latest milestone that has Wall Street's equity bulls taking a victory lap.
Ed Yardeni, founder and president of Yardeni Research, correctly anticipated that the S&P 500's closing low from Oct. 12 would mark a durable bottom.
As Inflation Goes Down, Soft Landing Odds Improve
Americans' two biggest economic worries are recession and inflation. The two are connected: the more stubborn inflation remains, the more likely it will take a recession to get it down.
The latest data suggest the risk is diminishing. Headline inflation has slid from 9.1% in June last year to 4% in May and 3% in June of this year. Much of the latest month's drop was technical: a surge in prices in June 2022 finally dropped out of the 12-month calculation. Because that won't be repeated, headline inflation could rise in coming months.
Roivant in Talks to Sell Stomach Drug to Roche in Deal Valued at More Than $7 Billion
Roivant Sciences, a biotech company started by Republican presidential candidate Vivek Ramaswamy, is in talks to sell an experimental drug for a debilitating stomach disease to Roche Holding, in a deal that could be valued at more than $7 billion.
Sale of the drug, for conditions known as ulcerative colitis and Crohn's disease, could be announced in the coming days, according to people familiar with the matter. The talks could still fall apart and another suitor could swoop in, one of the people cautioned.
FTX Sues Over European Unit Deal, Seeking to Recover $323 Million
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07-14-23 0015ET
