MARKET WRAPS
Watch For:
Germany CPI; France trade, balance of payments; UK industrial production, monthly GDP estimates, trade, index of services; Italy PPI; trading updates from TCS Group, Babcock International
Opening Call:
European stock futures point to a weaker open on Friday ahead of U.S. jobs report later in the day. In Asia, stock benchmarks weakened; Treasury yields, the dollar, and oil and gold futures all fell.
Equities:
European shares look set to decline at Friday’s open, tracking a downbeat mood in Asia after the financial sector tumbled in the U.S. session.
Investors dumped shares of SVB Financial Group and a swath of U.S. banks after the tech-focused lender said it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.
Stocks have dropped this week as investors rethink their expectations for interest rates, with many traders growing increasingly convinced that the Federal reserve will push rates higher than previously expected and keep them there for longer.
This week’s labor-market data could play a significant role in the Fed’s decision at its meeting later this month. The monthly jobs report will be released today.
Stock and bond prices could rally if Friday’s report shows that the economy added fewer jobs than expected, said Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions. “The whole fretting around higher rates, that could suddenly change a bit with some softer data,” he said.
Investors in interest-rate futures markets currently anticipate the Fed will increase rates by half a percentage point at its next meeting, having forecast a quarter-percentage-point increase last week.
“The market is focused on exactly where rates are going to peak, and there is a bit of uncertainty around that,” said Mike Bell, global market strategist at J.P. Morgan Asset Management.
Forex:
The dollar edged lower in Asia. Forex markets are back to a data-dependent state where bad news is potentially good news, Silicon Valley Bank said.
Fed Chairman Powell was extremely hawkish Tuesday, sending terminal-rate expectations higher and boosting the dollar. Powell then softened his tone yesterday, saying the size of March’s rate increase hasn’t been determined yet, the bank said.
With Fed officials entering a blackout period ahead of March’s FOMC meeting, focus will be placed on data including payrolls tomorrow and then CPI, SVB said. Today jobless claims are slightly higher than expected and “that’s bad news translating into good news.”
Bonds:
Treasury yields fell early Friday. The policy-sensitive 2-year Treasury yield fell further below 4.9% overnight after data showed that weekly initial jobless claims in the U.S. jumped to a 10-week high and a broad-based flight-to-safety trade took off in the afternoon.
Thursday’s broad-based rally in bonds, which pushed 3-month through 30-year yields lower, came as investors continued to absorb this week’s hawkish guidance from Powell and looked ahead to Friday’s employment data.
A strong February nonfarm payroll report on Friday and CPI inflation report, due on March 14, would likely encourage the Fed to hike its policy interest-rate target by 50 basis points at its next meeting in two weeks, analysts said.
“[T]he risks of a higher and faster hike trajectory have risen after Powell clearly lowered the bar for a 50bp hike in March, possibly in an attempt to dodge the mounting criticism that the Fed has fallen behind the inflation curve again. Still, the data will ultimately have the last say, and there is plenty of time and evidence to tip the scales back to 25bp, especially with the Fed in data-dependent mode,” said SPI Asset Management.
Energy:
Crude oil futures declined early Friday.
Supply issues are in focus amid rising U.S. oil inventories and risks for Russian oil exports, ANZ said. “While Russian supply looks resilient, we see nearly 1 million b/d of Russian oil supply at risk.”
“Should this amount be withdrawn from the market, it would be difficult for the non-OPEC producing countries to compensate.”
Metals:
Gold futures edged lower in Asia.
“Gold’s downshift to the low 1800s provides the buying opportunity many hoped for, but renewed upside inflation concerns and a more hawkish Fed, may not yet have run their course. Hence the next dollar direction will drive gold sentiment,” SPI Asset Management said.
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Copper prices fell amid a risk-off mood. China’s February CPI released Thursday rose less than expected on weak consumption across various sectors, which has weighed on sentiment, ANZ said.
Supply-side issues are also in focus again, ANZ said. Shanghai Metals Market reported Thursday that copper cathode output is expected to increase to 949,500 metric tons in March, up 41,700 metric tons from February, based on current production schedules.
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Chinese iron-ore futures rise, thanks to market expectations for economic recovery. The fundamentals are still positive, and the market is betting that demand for molten iron will grow in late March, as the economy recovers further, CSC Financial said.
Meanwhile, inventory levels at steel mills are low compared with usual levels at this time of year, which could drive up iron-ore prices if the mills restock, CSC said.
Read: Platinum is on track for a supply deficit for the first time in 3 years. Here’s why.
TODAY’S TOP HEADLINES
Bank of Japan Keeps Rates Unchanged at Kuroda’s Final Meeting
TOKYO-The Bank of Japan kept its interest-rate targets unchanged Friday at Gov. Haruhiko Kuroda’s final meeting after 10 years on the job, but analysts expect policy to shift under his successor, Kazuo Ueda.
The bank maintained its cap on the 10-year Japanese government bond yield at 0.5% and kept short-term interest rates at minus 0.1%. BOJ officials have said the bank still needs time to examine the effects of its December decision to raise the cap to 0.5% from 0.25%.
Banks Lose Billions in Value After Tech Lender SVB Stumbles
Investors dumped shares of SVB Financial Group and a swath of U.S. banks after the tech-focused lender said it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.
The four biggest U.S. banks lost $52 billion in market value Thursday. The KBW Nasdaq Bank Index notched its biggest decline since the pandemic roiled the markets nearly three years ago. Shares of SVB, the parent of Silicon Valley Bank, fell more than 60% after it disclosed the loss and sought to raise $2.25 billion in fresh capital by selling new shares.
Fed’s Barr : Recent move to safeguard banks from crypto doesn’t mean the central bank is against innovation
The Federal Reserve’s top bank regulator on Thursday tried to send something of an olive branch to the crypto industry.
In a speech in Washington, Fed Vice Chairman for Bank Supervision Michael Barr said that the Fed and other regulators were working to consider “whether and how” certain crypto-asset activity can be conducted in a manner that is consistent with safe and sound banking.
Big Oil Gushes Cash Because It Doesn’t Know Where to Invest
Oil-and-gas companies are still trying to figure out where to invest for the energy transition. The resulting hiatus makes for great shareholder returns, but not a long-term strategy.
The hot topics at CERAWeek by S&P Global, an annual industry gathering in Houston, are the impact on global energy markets of the Ukraine war and new opportunities from the Biden administration’s Inflation Reduction Act. In a bad sign for the European Union, many executives find the U.S. initiative more appealing, even after Europe sketched the outlines of a rival policy.
EU to Compete With U.S. Clean-Tech Tax Breaks by Loosening Subsidy Rules
BRUSSELS-The European Union is relaxing rules on government tax breaks and other benefits for clean-tech companies, part of an effort to prevent businesses being lured to the U.S. by new subsidies offered under the Inflation Reduction Act.
The EU’s highly awaited first move to counter the IRA’s impact was unveiled a day before European Commission President Ursula von der Leyen was set to meet President Biden at the White House for discussions centered largely on strained economic relations between the two allied economies.
Shooting at Jehovah’s Witnesses Hall in Hamburg Leaves Several Dead
BERLIN-Several people were dead following a shooting at a Jehovah’s Witnesses center in the northern German city of Hamburg Thursday evening, local police said.
Several people were seriously injured, the police said. It said a large law-enforcement contingent fanned out in the area.
Nord Stream Blast Probe in Germany Centers on Sailboat, Crew
German authorities investigating blasts that tore through the Nord Stream natural-gas pipelines last year have identified a boat manned by a six-member crew that they say could have been involved in a sabotage operation, according to a senior government official.
A summary report on the probe compiled for senior German officials said the vessel, a sport sailing boat, was rented in northern Germany days before the blasts by the six people, some of whom presented Ukrainian passports as identification, the official said.
Twitter and Elon Musk Face Legal Risks in FTC Probe
WASHINGTON-New details about the Federal Trade Commission’s probe into Twitter Inc. point to the significant and potentially costly legal risks the company faces as Elon Musk tries to get the company on the road to long-term profitability.
The FTC’s hundreds of written demands to the company in recent months, reported by The Wall Street Journal earlier this week, show it is investigating Mr. Musk’s personal role in high-profile decisions including massive layoffs, rapid changes to Twitter’s features and the sharing of internal company records with journalists.
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Expected Major Events for Friday
05:30/NED: Jan Manufacturing output
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March 10, 2023 00:26 ET (05:26 GMT)
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