A look at the day ahead in European and global markets by Kevin Buckland
European traders who went to sleep thinking a quarter-percentage-point Fed rate cut next week was a sure thing may have gotten a rude awakening on Friday the 13th. The chance of a massive half-percentage-point cut is now almost a coin toss.
It began with separate reports in the Financial Times and the Wall Street Journal, both saying the Sept. 18 decision was “a dicey situation.” Former New York Fed President Bill Dudley, who remains highly influential, told an event in Singapore that there was “a strong case” for a 50 bps cut.
That put the dollar on the defensive, as it fell to its lowest level this year against the yen and lost further ground against the euro. The yield on two-year government bonds was back below 3.6% in Asian hours.
Gold hit a new record high of $2,570.
The stock market reaction was mixed. Hong Kong’s Hang Seng rose more than 1% and Australian shares also rose.
But for the Nikkei, a decline was almost a given, given the yen’s strength. South Korea also fell, and mainland Chinese stocks struggled. It’s worth noting that all three of these markets are heading into a long holiday weekend, with South Korean traders not due to return to work until next Thursday.
A very early look at pan-European STOXX 50 futures was positive, pointing to a 0.3% increase.
There is little on the data slate in Europe on Friday to distract from the Fed-focused speculation, which has raised the odds of a 50-bps cut to 43% versus 28% early in the Asian morning. Some CPI prints continue to come in, including from France and Greece. Eurozone industrial production data is also expected.
There are no central bank speeches on the agenda, with the Fed and the Bank of England – which is due to announce policy next Thursday, with no change expected – in blackout periods. Meanwhile, the ECB has largely stepped into the rear-view mirror after Thursday’s well-publicised rate cut, and no clear guidance from President Christine Lagarde on when to expect the next cut.
Key developments that could impact markets on Friday:
-France, Greece, Poland, Slovakia CPI (August)
-Eurozone industrial production (July)
(By Kevin Buckland; Editing by Edmund Klamann)
