MARKET WRAPS
Stocks:
Stocks moved cautiously higher on Friday ahead of the latest U.S. jobs report that will be scrutinized for clues about the Federal Reserve's next moves in its campaign against high inflation.
Nonfarm payrolls are expected to increase by 200,000 and the unemployment rate is forecast to hold steady at 3.6%.
"Looking at the dollar index and the fixed income market, one thing becomes clear...traders believe the [chance] of a recession taking place in the U.S. is slim, which means that if the Fed wants to continue with its hawkish monetary policy, it certainly can," Zaye Capital Markets said.
"And a strong print on the NFP data could easily further strengthen those odds for a rate hike and push equity traders over the edge."
U.S. Markets:
Stock futures rose, while Treasury yields remained near highs, with earnings watchers eyeing big tech companies.
https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!Ht3NY1XazaY8jgORNo4kDVhy2T-WxzI2BTf5mVOem9wY_TsCKsLRgPetzSEpVNUeWR1cOgYdLF9a5-K2dUzeOBfbcqNxqdcZZVz62qIv4YE$ and Apple reported after Thursday's close, as did Coinbase and Airbnb. Amazon stock rose nearly 9% in premarket trading, boosting Nasdaq futures, after its quarterly profit trounced expectations.
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Forex:
Friday's jobs data should confirm the U.S. economy is performing well and keep the dollar propped up, Commerzbank said, although there is a risk the market has raised its expectations for the data following Wednesday's very strong ADP print, which means a low bar for disappointment and the dollar could ease in an initial reaction.
Read USD Index May Consolidate if Jobs Data Doesn't Shock, DBS Says
Sterling's strength could be fragile due to a weak U.K. economic outlook, Pictet Asset Management said, as it cuts its position on the currency to underweight from neutral.
"We think that sterling investors will start to price in an increasingly gloomy economic outlook. Sterling's ascent since last October has seemingly defied gravity. But we question for how much longer."
Pictet warns that U.K. economic data risk being "outright disappointing" in the coming months. Having kept to a fairly tight range in recent years, sterling broke higher over the last nine months as expectations for U.K. interest rates ratcheted up, it said.
Bonds:
Markets expect that an interest-rate easing cycle in the eurozone will begin in the summer of 2024, with the timing and speed dependent on inflation and growth, shifting pressure to long-end bonds, Societe Generale said.
"Even if rates stay on hold beyond next summer, markets will likely push for a re-steepening of curves, with rates volatility shifting from short to long rates."
Markets price European Central Bank interest-rate cuts starting in June next year, according to Refinitiv.
Metzler said international bond markets aren't looking good at all, despite the fact that inflation has recently fallen significantly in some cases and growth is weakening.
"Looking at 10-year Treasury, BTP or Bund yields, one gets the impression at the moment that yields will probably only go up once again."
At least, this is what charts indicate, Metzler said.
Energy:
Oil prices edged higher after Saudi Arabia and Russia said they'd extend a round of oil production cuts.
Meanwhile, the Russian Black Sea port of Novorossiysk was reportedly the target of a drone attack. The port is a major hub for Russian oil exports though it was unclear if the port itself had suffered any damage.
Metals:
Base metals were lower with gold flat, as investors awaited the U.S. jobs data, with the strength of the labor market likely to influence whether or not we see another Fed rate hike this year.
"The recent Fed hike on July 26 will pressure prices in the short term," BMI said.
It added that longer term, a weakening of the dollar should present upside to prices, though a shift in attitude from the Fed isn't likely until 2024.
DOW JONES NEWSPLUS
EMEA HEADLINES
German factory orders jump by 7% in June
German factory orders jumped 7% in June, the most in three years, according to data released Friday.
The big increase surprised economists who were forecasting a 2% decline, and comes after a surge in May, when revised figures said it rose by 6.2%.
WPP Cuts Growth Guidance After Profit Halves, US Tech Spending Slows
WPP cut its growth guidance for the year after a fall in pretax profit for the first half, when activity in its biggest market, the U.S., slowed on lower tech spend.
The London-based advertising group now sees like-for-like growth in revenue less pass-through costs for 2023 of between 1.5% and 3%, down from the previously guided 3% to 5% range. Its headline operating profit margin is still expected to be around 15.0%, the company said Friday.
Commerzbank Raises Views as Higher Interest Rates Drive Profitability
Commerzbank on Friday reported higher earnings for the second quarter, driven by higher interest rates, and said it expects net interest income for the full year to be higher than previously expected.
The German bank posted net profit of 565 million euros ($618.6 million) for the second quarter of the year, up from EUR470 million in the same quarter a year earlier.
Credit Agricole 2Q Earnings Jumped, Insurance Boosts Revenue
Credit Agricole SA reported a rise in second-quarter earnings on Friday after revenue was boosted by insurance income in the three months to the end of June.
The French bank said it made 2.04 billion euros ($2.23 billion) in net profit for the period compared with EUR1.64 billion in the prior year, on sales that grew 19% to EUR6.68 billion.
Maersk Lifts Guidance as Cost Cuts Helped Offset Lower Earnings
A.P. Moeller-Maersk on Friday posted a sharp drop in second-quarter net profit as freight rates and volumes fell, but cost-cutting helped earnings beat expectations and prompted the company to raise the lower end of its full-year guidance range.
The Danish shipping giant reported a quarterly net profit of $1.45 billion, down from $8.62 billion, as revenue fell 40% to $12.99 billion. A FactSet consensus had seen net profit at $591 million on revenue of $13.09 billion.
Swiss Re Profit Surges on Contained Natural-Catastrophe Losses
Swiss Re's net profit rose sharply in the first half, with all of its business contributing to the result, and particularly a low natural-catastrophe burden in its property-and-casualty segment in the second quarter.
The Zurich-based reinsurer said Friday that net profit was $1.45 billion in the first half compared with $157 million in the same period last year. In the second quarter alone, profit was $804 million compared with the $643 million the company reported for the first.
Sika's First-Half Net Profit Declined Amid Higher Sales
Specialty chemicals company Sika AG posted a 31% decline in its net profit for the first half of 2023, despite growth in sales, as expenses increased.
The Swiss company posted net profit of 411.9 million Swiss francs ($471.2 million), down 31% from CHF598.8 million a year earlier.
AngloGold Ashanti Hurt by Brazil Portfolio Impairments
AngloGold Ashanti said that first-half net profit fell and backed its guidance for the year as it booked impairments in its Brazilian portfolio.
The South African gold miner said Friday that net profit was $40 million, compared with $298 million the year before.
Vonovia 1H Earnings Fell on Proceeds, Recurring Sales Decline; Backs 2023 Outlook
Vonovia on Friday reported a decrease in revenue and earnings in the first half of the year as sale proceeds and recurring sales fell and confirmed its outlook for 2023.
The German real-estate company posted adjusted earnings before interest, taxes, depreciation and amortization of 1.34 billion euros ($1.47 billion) for the first half compared with EUR1.40 billion in the same period of the previous year.
GLOBAL NEWS
Hiring Has Stayed Strong. Here's Where to Look for Signs of Cooling.
Friday's jobs report is expected to show solid employment growth and low joblessness in July, suggesting the labor market remained strong despite the Federal Reserve's efforts to slow the economy to reduce inflation.
China's Central Bank Pledges to Flexibly Use RRR Cuts, Other Policy Tools
The People's Bank of China will need to flexibly use monetary policy tools including reserve-requirement-ratio cuts, open market operations and medium-term lending facilities to ensure ample liquidity in the country's banking system, a senior central bank official said Friday.
The PBOC will guide banks to adjust rates on outstanding mortgages and support lenders to control the cost of liabilities, Zou Lan, head of the monetary policy department at the central bank, said at a press conference.
China Has Become a Strain on Private-Equity Firms
Private-equity funds focused on China once boasted big returns. Now they have big problems.
U.S. dollar fundraising by private-equity firms that invest mainly in China has all but dried up. The days of large and easy profits are also over, as the country's internet gold rush has ended. Chinese companies are finding it increasingly hard to go public in Hong Kong and the U.S., limiting many private-equity funds' exit strategies. Chinese funds' returns for the last two years have also disappointed investors.
Economic Slowing Is in the Cards, Says Fed's Tom Barkin
The impact of Federal Reserve interest-rate hikes that began early last year "should start to really hit around now," the president of the Richmond Fed said, adding that those who keep predicting a recession will eventually be right.
"No one banished the business cycle," Tom Barkin said at an event in Blacksburg, Va. "Most recessions come suddenly. Remember the pandemic or the global financial crisis. Unexpected shocks cause consumers and businesses to pull back in unison."
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08-04-23 0532ET
