MARKET WRAPS
Watch For:
European Council informal meeting of EU heads of state and govt; U.K. Halifax house price index; Germany manufacturing orders; France foreign trade, balance of payments; Italy retail sales; trading updates from Repsol, SAS, Shell, Finnair
Opening Call:
Shares look set to rise in Europe on Friday as investors look ahead to the U.S. jobs report. In Asia, stock benchmarks were broadly higher; Treasury yields edged higher; the dollar gained slightly; oil futures and gold advanced.
Equities:
European stock futures are tracking higher ahead of the U.S. jobs data.
Investors are expected to remain cautious ahead of Friday's jobs report for September, despite a slight pullback in long-term Treasury yields that have been battering U.S. stocks.
"The jobs report is kind of critical this time," said Randy Frederick, managing director of trading and derivates at Schwab Center for Financial Research.
He sees a chance that a stronger-than-expected labor report could spark a deeper selloff in stocks and feed fears of more rate hikes to come from the Federal Reserve as it seeks to keep inflation coming down.
"The market is trying to sort out what the Fed is going to do," said Jim Polk, head of equity investments at Homestead Advisers.
"I think that's going to drive the market for a while."
San Francisco Fed President Mary Daly said Thursday that the Federal Reserve's 2% inflation target is within sight but "not yet in our grasp."
"We must remain resolute to finish the job," Daly said at an event in New York.
Policy makers need to maintain an "open mind and optionality" with the next steps on interest rates, she added.
Forex:
The U.S. dollar was seen consolidating ahead of the U.S. nonfarm payrolls report due later in the day.
Should the report follow the ADP employment data with a small increase of 50,000-100,000 jobs, it would suggest the labor market is close to stalling, CBA's Global Economic & Markets Research said.
A weak nonfarm payrolls report could extend the recent retreat of Treasury yields and put downward pressure on USD, though there is only a loose relationship between ADP and nonfarm payrolls, CBA added.
While the jobs data on Friday will be "very important" for the dollar's near-term direction, Brown Brothers Harriman said that looking beyond the potential intervention noise, nothing fundamentally has changed, and it sees no reason to believe the dollar's uptrend has ended.
Bonds:
Treasury yields broadly edged higher amid signs of easing U.S. labor markets and ahead of the U.S. jobs report.
Treasury yields ended mostly lower on Thursday, with the 10-year rate slipping further from its 16-year high, after data showed weekly initial jobless claims inched up to 207,000.
The next major move in bonds will likely be determined by Friday's nonfarm payrolls report for September. Economists polled by The Wall Street Journal expect 170,000 new jobs were added last month versus August's 187,000.
"A strong payroll report could spark a continuation of the recent bear steepening in rates as 10y Treasuries remain in their 4.50-5.32% technical air pocket," TD Securities said.
"However, an unexpected softening in payrolls could pour some cold water on the selloff, allowing the market to retrace a portion of recent weakness and find some temporary stability."
Fed funds futures traders are now pricing in an 80.4% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool.
The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in December is seen at 29.4%.
In prepared remarks on Thursday, San Francisco Fed President Mary Daly said the central bank can hold rates steady even if the labor market and inflation continue to cool.
Energy:
Oil futures gained early Friday, rebounding from overnight losses.
"The bears have odds on their side as traders have started to pay attention to the brewing trouble in the Treasury yields," which indicates higher interest rates from the Federal Reserve and the potential for lower economic growth, Naeem Aslam, chief investment officer at Zaye Capital Markets said.
Oanda said that if China's outlook continues to improve, oil prices could return back to the $90 level.
Tariq Zahir, managing member at Tyche Capital Advisors, said any fall presents another entry point for investors, "with production cuts still happening and the market still in a backwardation posture."
Backwardation refers to a situation in crude contract values where prices for oil for delivery in the near future are higher than those for later deliveries.
Metals:
Gold prices were slightly higher early Friday, following the retreat of U.S. Treasury yields from a multi-year high after another weak U.S. job report.
Investors are still mostly maintaining a bearish stance toward equities, which should eventually lead to safe-haven flows for gold, Oanda said.
Investors are waiting for the release of U.S. inflation data on Oct. 12 for a clearer picture on gold prices, Oanda added.
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Copper prices were flat amid rising inventories and improving supplies.
Although retreating U.S. bond yields helped commodity prices to stabilize, industrial metals remain under pressure on rising concerns of slowing economic growth, ANZ analysts said.
However, while weakening demand prospects are weighing on metals prices, new energy demand is providing a cushion, they noted.
To meet rising demand from the new energy sector, Vale, one of the world's largest integrated mining companies, is planning to increase its production capacity in copper and nickel, the analysts added.
TODAY'S TOP HEADLINES
Is The Economy Cooling or Revving Up? The September Jobs Report Will Offer Clues
Friday's jobs report is likely to show employers hired at a steady pace last month, the latest sign of a resilient U.S. economy that has contributed to the recent bond-market rout, according to analysts' forecasts.
Fed Still Has to Run 'Final Mile' on Inflation, Mary Daly Says
The Federal Reserve's 2% inflation target is within sight but "not yet in our grasp," a top Federal Reserve official said.
"We must remain resolute to finish the job," Mary Daly, president of the San Francisco Fed, said at an event Thursday in New York. Policy makers need to maintain an "open mind and optionality" with next steps on interest rates, she added.
The stock market is building up to a major 'buy' signal
The U.S. stock market doesn't deserve to fall as much as it has because of higher interest rates alone - and soon investors will begin to act on this realization.
The conviction that stock prices fall when interest rates rise is so universally held that few stop to examine it. But unexamined and untested beliefs can all too easily lead us astray. As Humphrey Neill, the father of contrarian analysis, constantly reminded his clients: "When everyone thinks alike, everyone is likely to be wrong."
Reports that China has been dumping Treasury bonds have been greatly exaggerated
Data purporting to show that China has been dumping its holdings of Treasury bonds have caught the attention of market bears and the financial press.
But one economist believes these claims have been greatly exaggerated. And he's got the numbers to back this up.
Why bank stocks are the 'Achilles' heel' of markets as bears worry high bond yields may 'break' something
Bank stocks are in need of a "recovery rally" to show that higher interest rates won't necessarily doom the U.S. economy to a recession in 2024, according to DataTrek Research.
"U.S. bank stocks are the market's Achilles' heel just now," said Nicholas Colas, co-founder of DataTrek, in a note emailed Thursday. "If the bears are right and 'something is going to break' because of suddenly higher interest rates, then that 'something' will almost certainly involve U.S. banks."
Putin Says Grenade Fragments Found in Wreckage of Prigozhin's Plane
Russian President Vladimir Putin said fragments of hand grenades were found in the victims of a plane crash that killed the Wagner Group's founder, Yevgeny Prigozhin, and suggested that the flight was brought down by an explosion from within.
Prigozhin was killed when the Embraer jet carrying him and other Wagner paramilitary officials crashed after takeoff from Moscow in August. Putin's assertion Thursday is in line with a Kremlin-controlled media campaign that has suggested different theories about Prigozhin's death. The campaign has ignored indications that Prigozhin was killed by the Kremlin over his abortive mutiny this summer.
Zelensky Asks Europe for More Help as Missile Strike Kills 50
GRANADA, Spain-Ukrainian President Volodymyr Zelensky made a plea to European leaders for more aid as Ukrainian officials said a Russian missile strike killed dozens of civilians and concerns mount over future U.S. support for his beleaguered country.
Speaking to leaders from the European Union and from European countries outside the bloc, Zelensky said Ukraine needs additional air-defense systems, artillery and shells, long-range missiles and drones. He said air defense was particularly important for Ukraine ahead of the winter, a shortfall laid bare when a grocery store and nearby cafe were struck in the northern Kupyansk district in one of the deadliest attacks since Russia invaded.
U.S. Jet Shoots Down Turkish Drone Over Syria
WASHINGTON-A U.S. F-16 fighter shot down a Turkish drone on Thursday after it flew near U.S. forces in northeast Syria, heightening tensions between two allies already at odds over an array of security challenges.
U.S. officials mounted a full-court press to ease relations with its fellow NATO member. The U.S. and its allies need Turkey's cooperation to secure Sweden's entry into the Western alliance, potentially carry out future diplomacy over Ukraine and grapple with terrorist threats in the Middle East.
(MORE TO FOLLOW) Dow Jones Newswires
10-06-23 0015ET
