MARKET WRAPS
Watch For:
Manufacturing PMI for eurozone, Germany, France, Italy; Italy GDP, PPI; UK S&P Global/CIPS manufacturing PMI, nationwide house price index; trading updates from Sberbank, SAS
Opening Call:
Shares may head higher in Europe on Friday after China announced stimulus measures to boost its economy and revive its ailing real estate sector. In Asia, stock benchmarks were mixed; Treasury yields mostly fell; the dollar was steady; while oil advanced and gold lost ground.
Equities:
European stocks could recover from the previous day's losses ahead of U.S. jobs data due later in the day and following China's raft of measures to boost its property sector.
Beijing said it would lower minimum down-payment requirements for first- and second-time home buyers and cut rates on existing mortgages to boost its economy and revive its ailing real-estate sector. China's big banks also plan to cut mortgage rates to boost consumption and aid the troubled property sector.
China's central bank also said it would lower the amount of foreign-exchange deposits banks will have to hold, a move seen as a bid to shore up the yuan.
Meanwhile, the U.S. monthly jobs report is expected to show a slowdown in hiring, but the unemployment rate is anticipated to remain low at 3.5%, near the lows of the late 1960s, worrying investors about the potential need for more rate hikes from the Federal Reserve to keep inflation on the decline.
EY expects the disinflation trend to continue in the remainder of 2023, which should allow the Fed to "stay put." "We do think that the Federal Reserve has reached the end of the tightening cycle and we do not expect further rate hikes," it said.
"With traders currently assuming an interest-rate pause for September, the question remains as to whether the end of the hiking cycle has been reached. Such an outcome would be positive for growth stocks in particular, which has enabled ongoing strength within the megacap technology sector," Interactive Investor said.
Forex:
The dollar was steady, supported by fresh U.S. data showing inflation stubbornly above the Fed's target, and labor markets resilient.
The dollar indexes approached recent peaks earlier this week, but a batch of statistics indicating an economic slowdown weakened the buck before today's partial recovery.
August payrolls data could add volatility to foreign exchange markets if they don't show an expected slowdown in job creation.
A solid run of strong U.S. economic data -- figures that left the U.S. economy looking stronger than its rivals -- has boosted the U.S. currency. The question is whether that momentum can continue.
"The U.S. was the only G-10 economy to see upward revisions to growth forecasts, and that helped the dollar outperform the rest of the G-10 currencies this month," Société Générale said. G-10 is foreign-exchange trader language for 10 of the world's most heavily traded -- and liquid -- currencies.
"That took the dollar higher, but are the upward revisions to U.S. growth overoptimistic?" Société Générale asked.
Time will tell whether resilient U.S. economic data continues to surprise.
Bonds:
Treasury yields mostly declined ahead of the August payrolls report. It will be the last non-farm report before the Fed's rate decision on Sept. 20.
Economists expect job gains to slow to 170,000 in August from 187,000 in the prior month.
Markets are pricing in a 88.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is seen at 37%, down from 45.5% a day ago.
"The PCE index has been moving in the right direction overall, but core inflation remains stickier than expected, keeping the data dependent - and 'agile' - Fed more likely to raise rates again this year," said LPL Financial.
"Moreover, the disinflation trend remains steady, but the Fed needs the numbers to edge lower before they can declare victory in its campaign to quell inflation."
Energy:
Oil rose in Asia after settling higher overnight following news reports that Russia has agreed to further output cuts with OPEC+.
"Crude oil prices rose amid a broad risk-on tone across markets," and news of a Russian output cut amplified the move, ANZ said.
The news has fueled some speculation that Saudi Arabia could also make moves to curb production.
"The money question is, will the Saudis deepen the cuts? Birds of feather flock together, so it is possible [the] Saudis will be joined by Kuwait and the U.A.E., who have so far been sitting on the fence," said Velandera Energy Partners.
In Russia, Deputy Prime Minister Alexander Novak told President Vladimir Putin Thursday that Russia will announce details of an agreement with OPEC+ to reduce the supplies of oil, according to a report from Reuters.
Metals:
Gold prices erased earlier gains that followed U.S. consumer-spending data for July coming in line with expectations.
The personal-consumption expenditures price index rose 0.2% on month in July, keeping the same pace as in June.
The latest figures underpin hopes the Fed could pause its monetary tightening, ANZ said.
Interest rates typically move inversely to gold prices. The downward revision to U.S. second-quarter GDP figures has also added to expectations of a Fed pause, ANZ added.
The main event for this week, however, is likely to remain Friday's U.S. August jobs report, analysts said.
"Should the U.S. labor market give more signs of weakness, there may be scope for further gold gains. However, even in the medium-to long-term, these gains will be limited because even if the Fed doesn't hike again, rates will remain elevated for a prolonged period," ActivTrades said.
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Copper rose amid positive market sentiment spurred by a slew of measures to stimulate China's property sector.
More activity in real-estate should translate to more demand for the building material. Robust GDP growth figures from India overnight are also buoying the demand outlook for the metal.
"This will help see copper demand growth nearly double this year compared with the five years prior to the pandemic," ANZ said.
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Iron-ore futures gained, with investor sentiment boosted by Beijing's supportive measures for the property market.
Two of China's biggest and most expensive cities relaxed regulations on home purchases, while the People's Bank of China has asked banks to lower mortgage rates.
The mortgage rate cut will provide a significant boost to demand for commodities, Maike Group said.
Market sentiment could improve significantly in the short term while there is relative optimism for commodity prices to grow in the long run, it added.
TODAY'S TOP HEADLINES
China Central Bank to Cut FX Reserves Ratio
China's central bank said Friday that it would lower the amount of foreign-exchange deposits banks will have to hold, a move seen as a bid to shore up the yuan.
The People's Bank of China said it would cut the foreign-exchange reserve ratio to 4% from 6%, in order to improve financial institutions' capability to utilize foreign-exchange funds. The central bank said the cut will take effect on Sept. 15.
China Caixin PMI Returns to Expansion
A private gauge of China's factory activity swung to expansion in August, thanks to improved supply and market demand.
The China Caixin manufacturing purchasing managers index rose to 51.0 in August from 49.2 in July, according to data released Friday by Caixin Media Co. and S&P Global.
Chinese Banks Plan Deposit Rate Cuts to Cushion Pain From Faltering Economy
Large commercial banks in China are planning to lower some deposit rates starting Friday, softening the blow of mortgage-rate cuts that will further squeeze their profit margins at a crucial economic juncture.
Major state-owned banks are expected to cut interest rates on time deposits by up to a quarter of a percentage point, according to a Chinese state-media outlet.
UAW Accuses GM, Stellantis of Unfair Labor Practices
The United Auto Workers union has accused General Motors and Jeep-maker Stellantis of not bargaining in good faith, two weeks before the labor contracts with Detroit automakers are set to expire.
UAW President Shawn Fain said Thursday that the union has filed a complaint with the National Labor Relations Board citing unfair labor practices by the two automakers.
Palestinians Press Saudis for Israeli Concessions in Normalization Deal
Palestinian leaders want Israel to relinquish control over small parts of the West Bank and tear down some illegal Israeli communities there as part of any U.S.-brokered deal establishing diplomatic ties between Israel and Saudi Arabia, said Saudi and Palestinian officials-far short of demands they have publicly made in the past.
The relatively modest Palestinian demands offer another sign that the West Bank leadership is willing to cooperate with White House efforts to broker a landmark Middle East deal.
Write to singaporeeditors@dowjones.com
Expected Major Events for Friday
00:01/IRL: Aug Ireland Manufacturing PMI
05:00/NED: Aug Netherlands Manufacturing PMI
06:00/UK: Aug Nationwide House Price Index
06:30/HUN: 2Q GDP
06:30/SWI: Aug CPI
07:00/POL: Aug Poland Manufacturing PMI
07:00/TUR: Aug Turkey Manufacturing PMI
07:00/AUT: 2Q GDP
07:15/SPN: Aug Spain Manufacturing PMI
07:30/CZE: Aug Czech Republic Manufacturing PMI
07:30/SWI: Aug https://urldefense.com/v3/__http://procure.ch__;!!F0Stn7g!E5eRQiHB8GJ7WPfDMSfKT1cJxG8ZNvi_GilW-HUavs7jI8q1p5B1_2T2mO9v9DouLCtTOS5bTVB9zDNgTNme5Z9RvdVbLvJZwY6pNWzvUYY$ Purchasing Managers' Index
07:30/EU: Aug EuroCOIN indicator of euro area economic activity
07:45/ITA: Aug Italy Manufacturing PMI
07:50/FRA: Aug France Manufacturing PMI
07:55/GER: Aug Germany Manufacturing PMI
08:00/ITA: 2Q GDP
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09-01-23 0020ET
