MARKET WRAPS

European stocks were mostly higher on Friday after recent soft U.S. data cemented bets the Federal Reserve will cut rates next week.

And traders have rushed to price back in the possibility of a 50 basis-points cut at the Fed's September meeting, following a report in The Wall Street Journal that it could be a close call.

Fed-fund futures have priced in a 43% chance of a half-percentage point reduction and a 57% chance of a quarter-point reduction.

"If pricing stays where it is currently, it would be the first meeting in years where there's serious uncertainty about the rates decision," Deutsche Bank said.

U.S. Markets:

Stock futures were stalling after a week of gains, with the focus still firmly on the Fed's meeting next week.

There are no major earnings expected, however the University of Michigan Preliminary Consumer Survey for September is due at 1400 GMT.

Forex:

The euro rose against the dollar though UniCredit Research said a firmer University of Michigan survey might limit further gains for the single currency.

The dollar was generally lower.

Reports from The Wall Street Journal and Financial Times suggesting a larger rate cut was on the table have led markets to re-evaluate their expectations, Deutsche Bank said.

The dollar's sharp fall versus the yen to near 140.60 during Tokyo trading was likely prompted by the WSJ article on the 50bp option, SuMi Trust said.

Still, the dollar is unlikely to break below Y140.00 as it is unclear how much the Fed is going to cut rates after the September meeting and the Bank of Japan might be able to make only one more rate increase, it said.

Bonds:

Eurozone government bond yields fell after Christine Lagarde didn't exclude the possibility of a rate cut in either October or December, J. Safra Sarasin Sustainable Asset Management said.

"Given the poor state of the European economy, its lacklustre investment spending and deteriorating labor market...a rate cut would be justified in October, followed by another cut in December."

Societe Generale said eurozone government bonds could be supported in October given the low volumes of supply to absorb and as spreads usually tighten, but they still could face headwinds.

Quantitative tightening volumes will be elevated and, alongside this, budget negotiations for 2025 will be in full swing, it added.

"This could shift the market's focus back onto fundamentals and expected 2025 supply, potentially spelling a test period for spreads."

MFS Investment Management said the recent steepening of eurozone government bond curves might slow over the next three months or so as the market's pricing of future ECB interest-rate cuts looks reasonable.

"The curve is already pricing in slightly less than 150 basis points cuts in 12-month time, which is broadly in line with our projections."

Markets will still be very sensitive to ECB governing council members' comments given there's likely to be a wide range of views on the ECB's next steps, it added.

Societe Generale said Treasury yield curve steepening is expected to stall until the Fed begins to cut interest rates.

With the two-year Treasury yields trading near year-to-date lows, SocGen doesn't see much more room for short-end yields to decline and also expects the 10-year Treasury yield to remain in the 3.75%-4% range until the U.S. elections in November.

"In this context, we are neutral on duration."

Energy:

Oil prices continued to recover, driven by U.S. supply disruptions after Hurricane Francine made landfall before being downgraded to a tropical depression.

According to data from the Bureau of Safety and Environmental Enforcement, Francine forced the shut-in of around 42% of crude oil production and 53% of natural gas production in the Gulf of Mexico as of Thursday afternoon.

Metals:

Gold prices rose, with investors piling into the precious metal as they wait on the Fed to cut interest rates following the latest string of U.S. data.

Futures were supported by a softer U.S. dollar and investors cementing bets on a 25 basis-point rate cut.

A risk-on tone was also boosting sentiment across base metals, with three-month copper and aluminum gaining on signs of supply tightness and a rise in raw material costs.

Fitch said industrial metals are likely to take their cues in the coming weeks from bets on the outcome of the coming Fed meeting in September.


EMEA HEADLINES

DSV Agrees to Buy Deutsche Bahn's Schenker Logistics Arm For More Than $12 Billion

Danish logistics company DSV said it would buy Deutsche Bahn's logistics arm for more than $12 billion, winning a monthslong sales process that saw sovereign wealth funds, private equity firms and shipping giant Maersk all weighing bids.

The Wall Street Journal reported Thursday that a consortium led by CVC and with Abu Dhabi Investment Authority, Qatar Investment Authority and Singapore's GIC as partners had made a rival offer.


Vodafone's U.K. Merger With Three Raises Competition Concerns, Regulator Says

Vodafone Group's deal to merge its U.K. business with rival operator Three raises competition concerns, the U.K.'s antitrust authority said, creating uncertainty on a deal poised to shake up the country's telecommunications market.

The Competition and Markets Authority said Friday that an in-depth probe into the deal provisionally concluded the combination could result in higher prices for tens of millions of mobile customers in the U.K. and not necessarily lead to higher network investments. The companies rejected the findings and said they would work with the CMA to secure an approval.


GLOBAL NEWS

Real Interest Rates Reached a New High. How It Changes the Fed's Next Moves.

It's the conundrum of our times. The Federal Reserve has managed to cool down the pace of inflation, and it's readying to lower interest rates. But lower price gains have brought new highs in real interest rates, which is slowing economic growth and could prompt Fed officials to cut rates more quickly in the future.

The U.S. central bank is widely expected to begin its rating-cutting cycle for the first time since 2020 with a quarter-point reduction at its coming meeting on Sept. 17-18. Consumers are seeing smaller increases in food prices while the unemployment rate has jumped, triggering a recession indicator last month.


Trump Allies Are Working on Plans to Privatize Fannie and Freddie

Donald Trump's allies want once again to try to untie the Gordian knot of the mortgage market: what to do with Fannie Mae and Freddie Mac.

Former Trump administration figures and bankers have been discussing plans on ending U.S. government control of the mortgage-finance giants should Trump win the presidential election, according to people familiar with the matter. The talks have been under way since at least this past spring and include reaching out to investment managers for advice on how to get the deal done.


Boeing Union Goes On Strike, Halting 737 Production

SEATTLE-Boeing's biggest labor union went on strike, halting production of its best-selling jets and dealing the latest blow to the struggling aerospace giant.

Thousands of machinists who build Boeing's 737, 777 and 767 jets walked off the job shortly after midnight Pacific time Friday, after rejecting a labor deal struck between the union's leaders and Boeing's executives. The contract offered 25% wage increases over four years.


Biden's Options to Support Ukraine Are Shrinking

With only four months left in the Biden administration and little hope of Congress approving additional funding for Ukraine no matter who wins the presidency, the White House is debating how best to help Kyiv given its limited toolbox.

That includes potentially lifting some geographic restrictions on Ukraine's use of certain Western weapons to strike back against Russian cross-border attacks-a possibility raised by Secretary of State Antony Blinken in Kyiv this week.


Trump Rejects Second Debate With Harris

Donald Trump ruled out another debate with Kamala Harris, a day after sending mixed signals following their clash in Philadelphia.

"Kamala should focus on what she should have done during the last almost four year period," Trump wrote Thursday, in all caps, on social media. "There will be no third debate!"


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(END) Dow Jones Newswires

09-13-24 0533ET