Watch For:

Eurozone New Commercial Vehicle Registrations; Germany Ifo Index; Italy Business/Consumer Confidence Surveys; U.K. CBI Distributive Trades Survey; updates from Carnival, Severn Trent

Opening Call:

Stocks in Europe are likely to stutter on Friday, as uncertainty about potential risks from the crisis at Evergrande continue to cast a shadow. In Asia, most stocks struggled for momentum, as did oil, the dollar edged lower again, while Treasury yields and gold notched modest gains.


European equities are likely to waver on Friday, as persistent worries over troubled Evergrande held back Asian markets. Japan's Nikkei rose after reopening from Thursday's national holiday, but shares elsewhere were muted.

On Wall Street, stocks rose broadly for a second consecutive session, as investors expressed cautious hope that the problems at Evergrande could be contained.

U.S. markets closed with no word on whether Evergrande would make $83.5 million in debt payments by a Thursday deadline. Chinese authorities are asking local governments to prepare for Evergrande to potentially fail, The Wall Street Journal reported, signaling Beijing's reluctance to bail it out.

"There is some confidence that the government is standing by to make sure that this doesn't become more widespread," said Stephanie Lang, chief investment officer at Homrich Berg. "There is no clear indication that they are going to prop up Evergrande, but they will make sure that this won't spillover more broadly."


The dollar continued to pull back in Asia after it dropped sharply Thursday, as risk appetite improved.

Sterling extended gains, after the Bank of England said it could raise the bank rate before its asset purchases had finished.

"With quantitative easing set to run until the end of the year, this implies that is would be possible, albeit unlikely, that the BOE could hike rates later in 2021," said Dominic Bunning, head of european forex research at HSBC.

Market pricing is now implying interest-rate rises in the first quarter of next year, which "should support GBP for now," Bunning said. "Any signs that these expectations might be pulled further forward would be even more bullish."

Citi analysts said they were surprised by "the magnitude and the timing" of the Turkish central bank's decision to cut interest rates by 100 basis points to 18%.

Turkey now risks "the possibility of an adverse cycle of rising inflation and expected inflation, which could further complicate the country's already challenging price dynamics," Citi said.

Given a weaker international reserve position and a more challenging macroeconomic backdrop, the possible adverse consequences of premature easing are likely to be greater than during similar episodes in the past. Citi's own recent analysis suggested "there was no room for easing" and tighter policy would have been more appropriate.


Treasury yields strengthened again in Asia, after the 10-year note yield posted its biggest one-day climb since March on Thursday.

"Powell said the tapering process could be wrapped up by mid-2022, which would require either an earlier [than December] start or larger reductions," Moody's said.

Unless upcoming economic data brings extreme surprises, "It seems we're headed for an eight-month taper, or $15 billion reduction per month," Moody's added.

"If 10-year yields close above 1.42%, look for a move towards 1.52%," said Tom di Galoma of Seaport Global Holdings.

Record inflows hit New York's reverse repo facility on Thursday, a day after Fed doubled to $160 billion how much an individual counterparty could place on its books.

The reverse repo facility took in $1.352 trillion, up from $1.283 trillion on Wednesday, as money market funds and other eligible firms continued to find it easier to move money to the Fed for a 0.05% return rather than chase scarce private sector short-term investments.

The size seen Thursday remained consistent with what analysts had said was possible. That said, while Fed officials seem completely fine with what's happening, the reverse repo tool saw almost no activity as recently as the spring.

And it compares with a $8.5 trillion Fed balance sheet, and dwarfs the $120 billion per month the Fed continues to add via its bond buying stimulus.


Oil futures were little changed in Asian trade, having closed the New York session around 1.5% higher, as a return of risk appetite in financial markets and fears of tightening crude supplies kept the commodity well-bid.

Demand for crude remains tepid, weighed by slowing aviation travel, Marex said. "Demand from the airline industry has slowed down in recent months" and remains well below pre-pandemic levels.

However, prices could be supported by signs of increased oil consumption from crude importer Japan. The country's crude inventory levels registered a net decrease of 882,390 kilolitres for the week of Sept. 12 to 18, compared with a week earlier, according to data from the Petroleum Association of Japan.


Gold posted modest gains in Asia, as investors shrugged off signals the Fed could begin scaling back its asset-purchasing activity and possibly raise interest rates.

"It's quite impressive just how relaxed investors are with the situation, " Oanda said. Even so, the Fed's intention to taper should weigh on the precious metal, with Oanda expecting the precious metal to test the $1,740/oz level soon.

Copper and aluminum prices were lower, as continued uncertainty over Evergrande's possible demise weighed on sentiment, with the wider base metals complex also broadly falling.

Beijing has asked local officials across China to prepare for a "possible storm" which signals it may not step in to bail out the property developer, according to the WSJ. This could have repercussions for the real estate and construction sectors, which may weigh on demand for the industrial metals.

Capital Economics said the Evergrande debacle is likely to hurt the global metal industry.

"We think that the most likely outcome is a managed restructuring, which would see other developers take over uncompleted Evergrande projects. However...we doubt it will be sufficient to offset the growing structural headwinds facing the property sector."

Capital Economics said that "China accounts for around half of global zinc consumption, of which 70% finds its way into the construction sector," and copper "also relies heavily on the Chinese construction sector...and this would be hard to offset even with increased demand elsewhere."



China Evergrande Keeps Dollar Bondholders Guessing on Key Interest Payment

Global investors who own China Evergrande Group's U.S. dollar bonds were in the dark Thursday about whether the property giant would make a key interest payment, a major test of the highly indebted developer's ability to avoid a default.

Evergrande was on the hook to make $83.5 million in coupon payments on Sept. 23 on dollar bonds with a face value of $2.03 billion. As of late afternoon in New York on Thursday, bondholders hadn't received the money, according to people familiar with the matter.


Pelosi Says Government Funding Won't Lapse

WASHINGTON-House Speaker Nancy Pelosi said Congress wouldn't let government funding expire next week, the first hint that Democratic leaders might decouple the government's funding from a contentious increase in the debt limit, on the same day that the Biden administration began preparing for a possible partial shutdown.

The Biden administration said Thursday that federal agencies are reviewing contingency plans in the event that funding runs out at 12:01 a.m. on Oct. 1. The White House said it expects Congress to take action to fund the government after its current funding expires and is preparing out of an abundance of caution.


Democratic Leaders Scramble to Find Areas of Agreement on $3.5 Trillion Spending Bill

WASHINGTON-Democratic leaders raced Thursday to find enough agreement around a roughly $3.5 trillion spending package to assuage concerns between the party's dueling centrist and liberal factions that threatened to derail a separate vote on an infrastructure package next week.

Liberal Democrats have said the two bills are linked and have balked at voting for the roughly $1 trillion infrastructure package on Monday in the House unless the broader healthcare, education and climate-change package has passed. The infrastructure bill has already cleared the Senate with bipartisan support, and moderates have urged leadership to bring it to the floor in the House.


America's Cash Might Stay on the Sidelines

If Americans ever feel comfortable again, they have a lot of money that they can spend. But who knows when that comfort will come?

The Federal Reserve on Thursday reported that the net worth of U.S. households was $134 trillion in the second quarter-up from $128.4 trillion in the first quarter. That figure stood at $110 trillion In the fourth quarter of 2019, before the pandemic took hold. Including nonprofits, accumulated household net worth in the second quarter hit a record $141.7 trillion.


Merger Mania Is Only Part of the Solution for Asset Managers

Just about everybody agrees that asset managers need to get bigger. But mergers may not be a cure-all.

The rapid growth of low-cost passive investment options and pressure on fees for active management have been piling pressure on asset-management companies for years. One way to relieve that pressure has been through scale, spreading costs across a wider revenue base and helping firms better compete with the likes of giant BlackRock.


U.K. Consumer Confidence Wanes in September on Inflation Fears

Confidence among British consumers took a hit in September, falling to a five-month low, as concerns over high inflation and the end of government support soured consumers' mood.

GfK's consumer-confidence barometer came in at minus 13 in September, down five points from August and missing economists expectations, who had forecast a reading of minus seven when polled by The Wall Street Journal.


Palladium Prices Hit by Car Production Slowdown

The new-car shortage is dragging palladium prices toward their worst month in a decade.

The most actively traded palladium futures on the New York Mercantile Exchange have fallen more than 20% so far in September, on pace for their worst month since September 2011, according to FactSet. Palladium, a key ingredient in emission filters for gasoline engines, fell 3.2% Thursday to $1,971.80 a troy ounce.


Nike's Revenue Pinched by Supply-Chain Disruptions

The Covid-19 pandemic has caught up with Nike Inc. The sneaker giant's revenue growth is being limited by supply-chain disruptions that have slowed the production and delivery of shoes and other goods around the world.

Nike on Thursday reported revenue of $12.25 billion for the quarter ended Aug. 31, up 16% from a year earlier and essentially flat with the June quarter. The results were below expectations of Wall Street analysts, who had expected revenue to reach $12.47 billion.


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Expected Major Events for Friday

05:00/FIN: Aug PPI

06:00/EU: Aug New Commercial Vehicle Registrations in Europe statistics (EU27 + EFTA3)

07:00/CZE: Sep Business cycle survey (consumer/business confidence)

07:30/SWE: Aug PPI

08:00/GER: Sep Ifo Business Climate Index

08:00/ITA: Sep Consumer Confidence Survey

08:00/ITA: Sep Business Confidence Survey

09:00/LUX: Jul Trade

10:00/IRL: 2Q Labour Force Survey

10:00/UK: Sep CBI Distributive Trades Survey

13:00/BEL: Sep Business Confidence Survey

15:59/UKR: 2Q Unemployment

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This article is a text version of a Wall Street Journal newsletter published earlier today.


(END) Dow Jones Newswires

September 24, 2021 00:37 ET (04:37 GMT)

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