With both Goldman and JPMorgan asking the question on everyone's lips, namely whether the market has bottomed, so far the answer remains elusive with futures flat on the last trading session of the day, but erasing earlier gains as sentiment remains on edge thanks to a VIX around 24 and the yen, the currency at the basis of the carry trade, failing to drop. Perhaps the only good news is that the wild week is ending on a subdued note, with Friday trading seeing light equity volumes and small moves across stocks, bonds and currencies as even traders are exhausted from the week's fireworks. Remarkably, US stocks are close to wiping out all the losses from the Monday’s market meltdown, with S&P 500 futures unchanged as of 7:45am, fading an earlier gain of 0.5%, after markets roared back on Thursday as data showed much fewer American filed for jobless benefits, alleviating fears of a looming recession. Nasdaq futures were modestly in the green led by Mag7 and semi stocks. European stocks are already positive on the week as investors hunted for bargains from the selloff. Treasury yields dipped and the dollar weakened. The VIX Index hovered around 23. Otherwise it will be a quiet data on the data front with no macro releases scheduled as investors now wait for next week’s data, which includes reports on the all important CPI and retail sales.
In premarket trading, Expedia surged after posting better-than-expected second-quarter results. Paramount Global rose 5% after the media company beat adjusted EPS estimates in the 2Q. The company also took on an impairment charge of $5.98 billion on its cable networks and announced a 15% cut to its US workforce. Here are some of the other most notable premarket movers:
Mixed signals from the Fed may prompt caution among investors, especially after Kansas City Fed President Jeffrey Schmid indicated he’s not ready to support a reduction in interest rates with inflation above the target, according to comments made on Thursday in the US.
"Market volatility could remain elevated for some time,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. But “investors shouldn’t overreact to swings in market sentiment,” he said. Since that flied in the face of sharply higher expectations for rate cuts by year-end, swaps traders trimmed bets on aggressive Fed easing in 2024. The global repricing has been so sharp that at one point interest-rate swaps implied a 60% chance of an emergency rate cut by the Fed in the coming week — well before its next scheduled meeting in September. Current pricing suggests about 40 basis points of cuts for September.
“Scope for higher bond yields is limited as central banks may have realized it’s time to move back to more neutral settings,” said Martin van Vliet, a macro strategist at Robeco. “This scare will will have reinforced the feeling among central banks that they need to take back the restrictiveness of monetary policy.”
The Stoxx Europe 600 index climbed 0.8%, led by energy, real estate and miners. Hargreaves Lansdown gained after a consortium including CVC and ADIA agreed to buy the investment manager in a £5.4 billion ($6.9 billion) deal. Trading volumes in European stocks were about 35% below average levels on Friday, according to data compiled by Bloomberg. Here are some of the biggest European movers on Friday:
Earlier in the session, the Asian stock rally lost some momentum as the yen temporarily resumed its rise. Japan’s Topix index narrowed its gain to 0.9% from as much as 2% earlier. Chinese shares turned flat after an earlier advance as perceptions grew that a better-than-expected inflation print mainly resulted from seasonal factors like weather.
In rates, treasury long-end yields are richer by 4bp near session lows as US trading day begins with bull-flattening move, partially unwinding Thursday’s selloff sparked by jobless claims data. Similar long-end-led gains seen in core European rates. Front-end yields are little changed, flattening 2s10s spread by ~3bp, 5s30s by ~1bp; 10-year around 3.95% is near top of 3.665% - 4.02% weekly range with bunds and gilts lagging slightly in the sector.
In FX, the Bloomberg Dollar Spot Index fell 0.2%, extending Thursday’s 0.2% drop as jobless claims data alleviated jitters about recession. The yen fluctuated between gain and losses. USD/JPY is down 0.1% at 146.90, erasing an earlier 0.4% advance; the pair has been whipsawed this week, falling as low as 141.70 as yen-carry positions were unwound amid a jump in volatility.
“Risk conditions are improving and the great bulk of JPY-funded carry positions have apparently been cleared,” said Westpac Banking Corp.’s Richard Franulovich and Tim Riddell wrote in a note to clients. “Against that backdrop USD/JPY has found a short term floor and probably spins its wheels around 146-148”
In commodities, oil was steady following a Thursday rally, against the backdrop of simmering tensions in the Middle East. Gold slipped.
Bitcoin is in the green and back above the $60k mark, but has eased back from a $62.7k high which printed in APAC trade.
There is nothing on today's macro calendar. Investors now wait for next week’s data, which includes reports on the all important CPI and retail sales.
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APAC stocks took impetus from the relief rally on Wall St where sentiment was underpinned after a larger-than-expected decline in Initial Jobless Claims soothed some of the recent labour market concerns. ASX 200 gained with outperformance in tech front-running the advances seen across all sectors. Nikkei 225 briefly reclaimed the 35,000 status and momentarily turned positive for the week after fully recovering from Monday's turmoil, but later faltered heading into the Japanese long weekend. Hang Seng and Shanghai Comp. were positive after encouraging signals from China's inflation data and with notable strength in China's largest chipmaker SMIC after its Q2 results which showed profits dropped sharply but beat expectations and revenue climbed, while it also forecasts double-digit percentage sequential revenue growth for Q3. However, the gains in the mainland were limited after the PBoC's open market operations for this week resulted in the largest net liquidity drain in four months.
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European bourses are firmer, Euro Stoxx 50 +0.4%, having begun the session with modest gains in limited newsflow and have been extended modestly on opening levels thereafter. Sectors primarily in the green, action overall though somewhat modest given the lack of specific drivers. Materials and Energy outperform slightly, with Chinese CPI and geopolitics respectively assisting. Breakdown has slight outperformance in the FTSE 100 +0.5%, with the region's housing sector performing well after Hargreaves Lansdown accepted a takeover offer. Stateside, futures are in the green with the tone largely a continuation of the post-claims move, ES +0.2%, NQ +0.4%; as above, specifics light and the docket ahead devoid of US-related Tier 1 catalysts or earnings.
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Geopolitics: Middle East
Geopolitics: Ukraine
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