MARKET WRAPS
Watch For:
EU industrial production; France CPI; trading update from Ashmore Group
Opening Call:
Shares could waver in Europe on Friday after U.S. data suggested the decline in inflation may have stalled. In Asia, stock benchmarks were mostly lower; Treasury yields were in the red; the dollar weakened; while oil and gold rose.
Equities:
European stocks are headed for wobbly start on Friday, as a selloff in U.S. bonds resumed and a gauge of U.S. consumer prices came in hotter than expected in September.
The continuing violence in the Middle East is also weighing on the market mood.
Analysts said the inflation data didn't offer much guidance about the Federal Reserve's next moves, even as the market-based probability of a hike in December crept higher.
The market will also be looking at today's raft of Chinese data, including headline inflation, which was flat in September.
"Markets are closely watching if the reported increase in Chinese infrastructure spending will materialize," said Commonwealth Bank of Australia.
Looking ahead, traders are now bracing for the start of third-quarter corporate earnings reporting season.
Forex:
The dollar slipped in Asia after earlier gains following the latest CPI and labor-market data, which supported one more Fed interest-rate increase.
"U.S. CPI came in slightly higher than expectations, yet again highlighting the challenges the Fed will face bringing inflation down all the way to the 2% target," Validus Risk Management said.
Fed-funds futures traders boosted the chances of a 25-basis-point rate hike by the central bank in December to 31.4%, up from 26.3% a day ago.
Meanwhile, traders saw only a 11.8% chance of a quarter-point hike on Nov. 1, according to the CME FedWatch Tool.
Bonds:
Treasury yields weakened, reversing earlier gains from hotter-than-expected headline inflation, which boosted the chances of a December rate hike by the Fed.
Lower-than-expected weekly jobless claims in the U.S. also helped support bets on a more hawkish Fed.
Resiliency in inflation and the U.S. economy may be playing a bigger role in the recent run-up of long-term Treasury yields than Fed officials think, judging by Thursday's reaction to September's CPI data, analysts said.
That is giving way to a greater likelihood that policy makers may need to raise rates one more time.
Energy:
Oil rose amid continued geopolitical tensions sparked by the Hamas-Israel conflict.
The broadening of the conflict poses a risk to oil markets, ANZ Research said.
If Iran becomes involved, the supply of up to 20 million barrels of oil a day could be disrupted directly and via obstructed logistics, it added.
Metals:
Gold ticked up amid mild weakness in the dollar, which typically has an inverse relationship with the precious metal.
Despite Fed rate-increase fears sparked by U.S. CPI data overnight, this doesn't mean the U.S. central bank will raise rates before the year-end, said Oanda.
The September inflation print was hotter than expected. Core disinflation is cooling and expectations are for a softening U.S. economy to maintain the disinflation process, Oanda said, adding that gold's short-term outlook remains bullish.
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Copper was little changed, with analysts flagging outlook toward the downside amid reports of rising supply.
Copper stockpiles on the London Metal Exchange have hit their highest level in nearly two years, ANZ said, adding that "deteriorating demand outlook in traditional sectors such as construction" is also affecting the red metal.
ANZ also noted that a stronger U.S. dollar is adding pressure on the base metals sector.
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Iron-ore prices were higher in Asia, following media reports saying that Australia is weighing adding the steelmaking material onto its critical minerals list.
ANZ said iron-ore has gained as Australia mulls adding domestically abundant commodities to the list.
Meanwhile, relatively strong demand in China is also propping up prices, Baocheng Futures said.
However, overall weak sentiment in the mining market persists as profit losses at Chinese steel mills have intensified and expectations of upcoming production cuts rise, it said.
TODAY'S TOP HEADLINES
The Fed Is Putting Too Much Faith in Markets
The Federal Reserve has a new theory: The bond market is doing its job for it, so it can sit back and watch rather than raise rates again this year.
It's a nice theory, and was well set out this week by Dallas Fed President Lorie Logan. She argued that the recent increase in the gap between Treasury yields and the future path of interest rates-known as the term premium-tightens monetary conditions, slowing the economy much the same way that a rate bump would. Because she was one of the more hawkish interest-rate setters, traders took it as a sign the Fed might be at peak rates. This view was backed up by similar noises from other policy makers, including Fed Vice Chair Philip Jefferson.
Fed's Collins says rise in bond yields could reduce the need for further interest-rate hikes
The recent rise in long-term bond yields could obviate the need for further interest-rate hikes, Boston Federal Reserve Bank President Susan Collins said on Thursday.
"Importantly, the rise in long-term yields implies some tightening of financial conditions. If it persists, it likely reduces the need for further monetary-policy tightening in the near term," Collins said in a speech to community bankers at the Boston Fed.
China Consumer Prices Flat in September, Producer Prices Stay in Deflation-Update
China's headline inflation was flat in September, weighed by a steep drop in pork and vegetable prices, as well as high base effects.
The consumer-price index was flat on year, compared with a 0.1% rise in August, the National Bureau of Statistics said on Friday.
U.S. Sanctions Two Tankers Accused of Violating Russian Oil-Price Cap
The U.S. hit two oil tankers and their owners with blocking sanctions and said they had carried Russian oil above the West's price cap of $60 a barrel, the first time the Biden administration has punished market participants for violating the rules.
The Treasury Department said it was targeting one ship with a registered owner in the United Arab Emirates and one with a registered owner in Turkey. Both ships carried Russian oil above $60 a barrel while using U.S. maritime services, according to the Treasury. The new sanctions prohibit all U.S. people and entities from transacting with the ships and their owners.
Israel Aims to Dismantle Hamas as Blinken Tries to Prevent Wider War
TEL AVIV-Secretary of State Antony Blinken urged Israel to avoid civilian casualties amid growing fears of a wider regional conflict as Israeli forces embarked on a military campaign to dismantle Hamas, pounding Gaza with airstrikes.
Israel on Thursday gave the clearest indication so far of its war aims, with the military saying it plans to capture or kill all of Hamas's leaders, destroy the group's militant units and make it impossible for the group-which the U.S., Israel and others have designated a terrorist organization-to govern Gaza.
Israel Flight Cancellations, Ticket Prices Leave Some Stranded
Airlines have suspended flights into Israel en masse, leaving people seeking to exit from the country contending with fewer flights and sky-high ticket prices, and in some cases resorting to chartering private jets.
Most major airlines have stopped operating flights to Israel following the surprise attack by Hamas militants on Saturday, which led the Israeli government to declare itself in a state of war. That includes the big three U.S. operators, Delta Air Lines, American Airlines and United Airlines, and a raft of European and Asian carriers.
U.S. to Hold Off on Disbursing $6 Billion in Iran Oil Revenue Unfrozen in Prisoner Deal
The U.S. and Qatar have agreed to deny Iran access to $6 billion in oil proceeds that Washington had previously freed up as part of a prisoner swap reached last month, according to people familiar with the matter.
The decision with Qatar, whose government is overseeing Iran's access to the funds, comes amid concern for Tehran's long-running provision of money, arms and intelligence to the group responsible for the terrorist attack on Israel last weekend, Hamas.
X Fumbles First Big Musk-Era Test of Content Policies After Israel Attack
The war that broke out last weekend between Israel and Hamas is one of the biggest tests of social-media's content policing in years. So far, Elon Musk's X Corp. is stumbling, and it could get worse.
Since Hamas attacked Israel on Oct. 7, social-media platforms have been dealing with a range of challenges-misidentified video footage, fabricated information and violent content.
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Expected Major Events for Friday
05:00/FIN: Aug Retail sales
05:00/FIN: Sep CPI
06:00/SWE: Sep CPI
06:30/SWI: Sep Import Price Index
06:30/SWI: Sep PPI
06:45/FRA: Sep CPI
07:00/SPN: Sep CPI
07:00/SVK: Sep CPI
07:00/SVK: Sep Core & net inflation development
08:00/CZE: Aug Monthly Balance of Payments
08:00/POL: Sep CPI
09:00/EU: Aug Industrial Production
12:00/POL: Aug Balance of payments
15:59/UKR: Aug Trade
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(END) Dow Jones Newswires
10-13-23 0015ET
