European shares made solid gains on Friday with investor attention still focused on inflation and central bank monetary policy.
More hawkish comments from Jerome Powell on Thursday, who said the central bank shouldn't waver in its commitment to aggressively tackling inflation and the historic interest-rate hike from the European Central Bank have added to the narrative that financial conditions will continue to be tightened.
Nevertheless, stocks were on track to close the week in positive territory, even as pressures over higher interest rates--which have battered the stock market this year and raised the risk of recession--remain salient.
The energy crisis remains in focus, with European ministers debating plans for an intervention in the continent's energy markets at an emergency meeting that is aimed at tamping down soaring electricity prices.
The ECB's press conference validated market pricing of a short, sharp cycle, Citi said.
On the hawkish side of the ECB's rhetoric was the upsizing to 75bps, the sharp jump in inflation forecasts, the commitment to more interest rate hikes over the next several meetings, and the suggestion that rates are still far away from the level required to the inflation goal, Citi said.
On the more dovish side, Citi mentioned Christine Lagarde saying that a 75bp rate hike wasn't the norm, an acknowledgment that the ECB can't bring down inflation caused by energy and that the market pricing isn't too bad.
RBC Capital Markets raised its forecast for the ECB's rate decisions, penciling in a further 175bp of increases, to a terminal rate of 2.5%.
"We see this being achieved in one further 75bp move in late October to be followed by one 50bp step in December and two smaller 25bp hikes in Q1 next year," RBC said.
Airbus deliveries are slightly behind the rate of prior years, but this is more a reflection of supply-chain issues than a of weakening customer demand, Citi said.
The plane maker booked no new aircraft orders and delivered 39 planes in the month of August. The 382 planes it has delivered so far this year represent 55% of its 2022 full-year target, but the company is 2% behind on where it was on average in the three-year period ended in 2019, Citi said.
"Deliveries are a little behind where we'd like, but we do not see this as insurmountable."
Read: Airbus Delivery Guidance Looks Challenging
A recession in the U.K. over the coming quarters no longer looks likely after the implementation of a price cap for households' electricity and natural gas bills, Pantheon Macroeconomics said.
With the measure, the average household will spend less on energy over the next six months than during the last six, and this will improve the near-term inflation outlook.
"CPI inflation will rise to a peak of 10.8% in October, from 10.1% in July, before then easing thereafter," Pantheon said.
The low-point of real household disposable income has already passed, and its expected upswing looks strong enough to ensure that an economic recession will be narrowly avoided.
Stocks were set to rise and snap a three-week losing streak, with investor attention still focused on inflation and central bank monetary policy.
More hawkish comments from Jerome Powell, who said the central bank shouldn't waver in its commitment to aggressively tacking inflation and the historic interest-rate hike from the European Central Bank have added to the narrative that financial conditions will continue to be tightened in the face of red-hot inflation.
Nevertheless, stocks were on track to pull out of a three-week losing streak even as pressures over higher rates--which have battered the stock market this year and raised the risk of recession--remain salient.
The dollar fell to a one-week low in early trading, with the DXY Dollar Index dipping below 109.00, even after Jerome Powell underlined his commitment to fight inflation.
"The driver of this USD pullback seems to be some reversal of the recent JPY weakness, with USD/JPY drifting back below 143 on the back of Bank of Japan Governor Haruhiko Kuroda's warning that the rapid weakening of the JPY is undesirable after a meeting with Japan Prime Minister Fumio Kishida," UniCredit Research said.
EUR/USD rose to a 3-week high.
Morgan Stanley said it remained short on EUR/USD, expecting it to trade below parity again and targeting 0.97, with a stop at 1.05.
The backdrop to its view is that the ECB's monetary policy normalization may be inefficient to support the currency if the normalization is taking place in a stagflationary environment.
It considers Italian elections on Sept. 25, eurozone inflation data at the end of the month, and the prospect for price supports on European energy as key catalysts.
Danske Bank said it continued to see further downside risk for the euro, targeting EUR/USD of 0.95 on a 12-month horizon, adding that medium-term valuation drivers are set to weigh more persistently on the cross in the quarters ahead.
"Until we see a broad rebound in global growth, a capex boom, a sharp drop in energy prices and/or the Fed cutting rates, we think EUR/USD has more downside in store and the ECB decision does not change that."
Eurozone government bond yields extended gains early Friday in further reaction to the ECB's rate hike and the promise of further increases.
"We believe the ECB will aim to bring its policy rates into neutral territory reasonably quickly, and expect additional 50-basis-point policy rate hikes in October and December as a result," Pimco said.
Oil prices were higher, gaining some support from Vladimir Putin's threat to cut off crude supplies to nations that back the price cap plan and as investors judge the recent selloff as "overdone," ANZ said.
Base metals and gold pushed higher ahead of a national festival in China, with commodities rallying on an easing dollar.
Marex said that traders may be looking to cover positions with the closure of the SHFE index for the Mid-Autumn Festival, as well as a possible LME closure following the Queen's death in the U.K.
Europe Holds Emergency Talks on Energy-Market Intervention
BRUSSELS-European energy ministers are debating plans for an intervention in the continent's energy markets at an emergency meeting that is aimed at tamping down soaring electricity prices.
Diplomats said many countries-including the European Union's biggest economies, Germany and France-appeared to agree ahead of Friday's meeting on the idea of imposing a cap on the revenue earned by nuclear, renewable and other nongas producers of electricity, and redistributing the money to businesses and consumers.
Cineworld Gets Approval for $785 Mln of First Day Relief by Bankruptcy Court
Cineworld Group PLC said Friday that it has received court approval for "first day" relief from a U.S. bankruptcy court, giving it immediate access to around $785 million from a $1.94 billion line of credit to support operations.
Shares at 0730 GMT were up 0.21 pence, or 5% at 4.35 pence.
Baltic States, Poland to Cut Land Route to EU for Most Russian Visa Holders
European Union countries announced fresh restrictions Thursday on Russian tourists coming to the bloc, with the Baltic states and Poland saying they will restrict entry for most Russian visa holders because of the war in Ukraine.
With air routes to the EU largely cut, Russian tourists have been entering the bloc in large numbers by land via Lithuania, Latvia, Estonia, Poland and Finland. Estonia had already moved to block Russian visa holders. Finland has cut the number of new tourist visas it will hand out.
Ukrainian Forces Punch Forward in East, Threatening Russian Supply Lines
Ukraine's military advanced as much as 30 miles in the country's east and liberated more than 20 villages and towns, a senior commander said, in a rapid thrust aimed at cutting Russian supply routes.
Brig. Gen. Oleksiy Hromov, a senior officer on Ukraine's General Staff, gave the first official confirmation of the gains of an offensive launched Tuesday to the east of Ukraine's second-largest city of Kharkiv.
Fed's Powell Affirms Need to Act Strongly to Fight Inflation
Federal Reserve Chairman Jerome Powell said the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s, firming expectations of a third consecutive 0.75-percentage-point rate rise later this month.
"It is very much our view, and my view, that we need to act now forthrightly, strongly, as we have been doing, and we need to keep at it until the job is done," Mr. Powell said Thursday morning at a virtual conference hosted by the Cato Institute.
Inflation Eases in China as Growth Challenges Pile Up
Inflation in China unexpectedly retreated in August, a fresh sign of trouble in the world's second-largest economy as new lockdowns in large cities again imperil growth.
Consumer prices rose 2.5% in August compared with a year earlier, China's National Bureau of Statistics said Friday, down from July's 2.7%. Economists polled by The Wall Street Journal had expected 2.8%.
White House Weighs Order to Screen U.S. Investment in Tech in China, Other Countries
WASHINGTON-The Biden administration is weighing an executive order to screen and possibly restrict U.S. overseas investment in cutting-edge technology development in China and other potentially hostile countries.
The White House is aiming to issue such an order within the next couple of months to monitor and potentially block outbound investment by American companies and investors, according to people familiar with the matter.
Inflation expectations are 'collapsing' - here's why that could spur a rebound in stocks
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