UKX FTSE 100 Index

MARKET WRAPS

Watch For:

EU trade; Germany WPI; France CPI; trading updates from Repsol, Mondi, Ashmore Group, Mediclinic International

Opening Call:

Shares in Europe may gain Friday, as focus remains on U.K. bond markets with the Bank of England's temporary bond purchases due to end today. Asian equities rose; Treasury yields declined; the dollar wavered; oil futures and gold prices fell.

Equities:

European stock futures indicate a higher opening, building on Thursday's gains following a higher-than-expected core U.S. inflation data and speculation about a potential U.K. government U-turn on controversial tax-cutting plans.

"It looks like the market's pricing in a rising probability of a major U-turn or even potentially several, improving the UK's fiscal outlook while simultaneously leaving the new prime minister and her chancellor looking like they're unable to control events," IG said.

U.S. stocks also staged a massive turnaround on Thursday, ending a six-day losing streak, after CPI data reinforced expectations that the Fed will continue with large interest rate increases in coming months.

Crucial data points, including CPI and nonfarm payrolls, have tended to see sharp, knee-jerk reactions, noted Art Hogan, chief market strategist at B. Riley Wealth Management.

The reaction among traders was to see the data as "another step closer to Armageddon, and then take a step back from the cliff and say we've already priced a lot of that in," Hogan said.

But Fawad Razaqzada, market analyst at City Index and Forex.com, doubts the bounce will prove durable.

"Indeed, following the stronger CPI report, the case has been sealed for a fourth 75-basis point hike in September, although there are now talks that the Fed could even hike by 100 bps. This should keep the US dollar supported on the dips against currencies where the central bank is either hiking less aggressively or is not. Stocks and gold might continue to struggle until something changes fundamentally," he said.

Forex:

The dollar was steady early Friday. Given the surprise positive reaction overnight to the U.S. CPI report, markets may try to follow through with the recovery, as the possibility of further unwinding of shorts remains, IG said.

The highly-feared CPI report is now over, which has provided some breathing room for risk sentiment before the FOMC meeting in November, IG added.

Bonds:

Treasury yields fell in Asia a day after the hot core CPI reading sent yields surging above their 2022 peaks.

Fed funds futures traders were pricing in a 98.6% chance that the Federal Reserve would lift its main interest-rate target by 75 basis points, or three-quarters of a percentage point, to a range of 3.75% to 4% on Nov. 2, according to the CME FedWatch tool.

A 1.4% chance of a 100-basis-point hike was also seen.

Barclays sees the benchmark U.S. interest-rate target getting to 5% to 5.25% by February--from a current level between 3% to 3.25%--on the back of "more aggressive, front-loaded" rate increases by the Fed.

A 5% fed-funds rate would be "negative for stocks and earnings and lead to more selloffs in bonds," said Tom di Galoma, managing director of rates trading at Seaport Global Holdings in Greenwich, Conn.

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Volatility in U.K. government bonds, or gilts, is expected to continue unless the government addresses its plans for debt-funded tax cuts, BCA Research said.

Although the BOE can "help provide temporary stability" through temporary emergency gilt purchases, "the 'original sin' of the debt-financed tax cuts must be addressed before the volatility in gilts and the pound can subside," it said.

If the BOE does end the bond-buying on Friday, leaving the market to fend for itself, then investors are "in for another couple of weeks of extreme volatility," Jonas Goltermann, senior global economist at Capital Economics, said.

Energy:

Oil futures edged lower in Asia amid mild USD strength.

However, the recent market weakness from fears of Fed rate increases and the strong dollar are "now flipping over to the fact that supplies are dangerously low as we head into winter," The Price Futures Group said.

After spending most of 2022 at record low levels, U.S. stockpiles of crude have risen on the combination of weaker seasonal demand and Strategic Petroleum Reserve releases," Peter McNally, global sector lead for industrials materials and energy at Third Bridge said.

Many people feel that the SPR is being drawn down "strictly for political purposes" and is going to "end up leaving us with an even tighter supply scenario as we get deep into winter," The Price Futures Group said.

Metals:

Gold prices maintained their downward trend early Friday amid concerns over large Fed rate increases.

"Recent gold price movements remain highly correlated to inflation expectations, not current inflation levels," said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management.

Negative investor headwinds are also "more than offsetting net gold purchases by central banks and any geopolitical risk premium."

Traders will be watching to see how gold reacts in the coming days, Peter Spina, president of GoldSeek.com said.

"I believe buyers will step in as seller exhaustion continues and speculators trying to short will be unable to break the price to new lows," he said.

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Copper rose in Asia ahead of China's 20th National Congress starting Oct. 16.

This event might give an indication on how the government plans to implement its zero-Covid-19 policy which had such a strong impact on industrial activity earlier this year, BofA Global Research said.

A pragmatic Covid-19 policy in China as well as Europe avoiding a deep recession should support metals demand in 2023, it added.

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Chinese iron-ore futures fell, extending a recent downtrend amid lingering demand concerns.

Steel mills' restocking momentum appears weak and port inventories of the raw material haven't been notably reduced, Soochow Futures said.

Steel demand also faces downward pressure due to seasonality after mid-October, it added.

TODAY'S TOP HEADLINES

Inflation Report Seals Case for 0.75-Point Fed Rate Rise in November

Another uncomfortably high inflation reading for September is likely to keep the Federal Reserve on track to increase interest rates by 0.75 percentage point at its meeting next month.

The report also raises the risk officials will delay an anticipated slowdown in the pace of rate rises after that. Another possibility is they could telegraph an expectation that rates will need to rise to even higher levels early next year than policy makers and investors previously anticipated.

China's Consumer Inflation Jumped in September, Producer Price Growth Slowed

China's consumer inflation rose at the fastest pace in more than two years in September, lifted by higher pork and other food prices, official data showed Friday.

The country's consumer inflation index increased 2.8% from a year earlier in September, accelerating from a 2.5% rise in August, said the National Bureau of Statistics.

U.K. Markets Rally as Investors Bet Government Will Roll Back Tax Plans

LONDON-U.K. financial markets rallied Thursday as investors bet the government would reverse course on its recent tax-cutting plans, while the country's Prime Minister Liz Trussgrapples with a growing rebellion from both investors and lawmakers from her own Conservative Party.

U.K. government bond prices rose and the pound surged against the dollar on expectations that some or all of the government's plans would be rolled back, according to analysts.

Iraq Names New President, Paving Way for Next Government

BAGHDAD-Iraq's Parliament moved Thursday to end a yearlong deadlock over forming the country's next government, choosing an independent Kurdish politician as the new president after a rocket attack nearby failed to disrupt the proceedings.

A majority of the lawmakers present in Parliament voted over two rounds to select Abdul Latif Rashid as president, a largely ceremonial post. Immediately after he was sworn in, Mr. Rashid asked Mohammed al-Sudani, a senior Shiite politician, to assemble a new government.

Amazon's October Attempt at Prime Day Falls Flat, Analysts Say

Amazon.com Inc.'s latest Prime Day-like event appears to have fallen short of the company's normal summer sales bonanzas.

Analysts said Amazon's 48-hour "Prime Early Access Sale," which occurred on Tuesday and Wednesday, didn't give the e-commerce company the same revenue boost, or attract as much social-media buzz, as prior Prime Days. This was Amazon's second such shopping event this year. The previous one was in July.

Netflix's Ad-Supported Plan Will Launch in November at $6.99 a Month

Netflix Inc. will charge $6.99 a month for its new ad-supported tier of service when it debuts next month, the company said Thursday, releasing the plan a month before the launch of Disney+'s ad-backed streaming tier and for one dollar less.

Netflix said the new tier, called "Basic with Ads," will initially be available in 12 countries including the U.S., U.K., Canada, Germany, Japan, Brazil and Australia, though it plans to launch more broadly over time. The ad-supported tier will launch in those initial markets globally in stages between Nov. 1 and 10, the company said.

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Expected Major Events for Friday

05:00/FIN: Aug Retail sales

05:00/FIN: Sep CPI

06:00/GER: Sep WPI

06:45/FRA: Sep CPI

07:00/SPN: Sep CPI

07:00/SVK: Sep CPI

07:00/SVK: Sep Core & net inflation development

07:00/HUN: Aug Construction

08:00/CZE: Aug Monthly Balance of Payments

08:00/POL: Aug Merchandise trade

08:00/POL: Sep CPI

09:00/CRO: Sep CPI

09:00/EU: Aug Foreign Trade

11:00/UK: 3Q Bank of England Quarterly Bulletin

12:00/POL: Aug Balance of payments

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(END) Dow Jones Newswires

October 14, 2022 00:16 ET (04:16 GMT)

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