Is U.S. resilience set to fade?
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IS U.S. RESILIENCE SET TO FADE? (1055 GMT)
China's reopening boost is running out of steam, and the euro zone is under pressure, but there are signs that the U.S. market remains relatively strong, says BofA strategists, mentioning the U.S. composite PMI, which rose to a 13-month high in May.
Why so resilient? BofA comes up with five reasons:
(1) a jump in real disposable household income at the start of the year
(2) an overshoot in capex growth relative to weakening credit conditions
(3) supportive fiscal policy
(4) large corporate order backlogs
(5) support from a weaker U.S. dollar, "with the May PMI report pointing to tourism, helped by a weaker USD, as a driver of activity"
While support from the first four points will fade , according to BofA, the FX boost is likely to persist, but it might not be enough support.
"We think it will be insufficient to fully offset the drag from a weakening credit cycle. Taken together, this suggests the tail-winds supporting the U.S. growth rebound are largely exhausted, while the lagged impact of tighter monetary policy is set to intensify," the strategists say.
(Joice Alves)
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MINERS ADD FUEL TO STOXX RALLY AFTER CHINA STIMULUS TALK (1036 GMT)
A surge in mining stocks has given another boost to European markets on Friday after reports that China is considering stimulus measures for the property sector.
Bloomberg News reported that China was mulling a new property support package after existing policies failed to sustain a rebound in the sector.
"Given the high numbers of developers who have run out of cash and properties that remain half-finished ... this move will renew hopes that more construction projects will see progress," says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"But confidence is still fragile, and it remains to be seen just how much of a significant difference this move will make. This may turn out to just be another sticking plaster for China's ailing property sector," Streeter adds.
Still, the STOXX 600 basic resources index .SXPP is up 4.7% as all its constituents gain at least 1.8%.
Leading the way is Sweden's Boliden, up almost 7%, followed by Antofagasta, Anglo American, Aurubis and Norsk Hydro, which are all gaining at least 6%.
This has pushed up the main European benchmark indexes, with the pan-European STOXX 600 .STOXX up 1%, having earlier been supported by the passage of the debt ceiling legislation in congress and expectations for less tightening from the Fed.
(Samuel Indyk)
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EUROPE RALLIES ON FED RATE HOPES AHEAD OF JOBS REPORT (0754 GMT)
Major European indexes have opened in the green on Friday on expectations that monetary policy tightening is close to an end, although gains are capped ahead of today's U.S. labour market report.
"Markets recovered their poise over the last 24 hours," Deutsche Bank's Jim Reid says in a note.
"That's been driven by several factors, including the passage of the debt ceiling deal through Congress, the prospect that the Fed might finally pause their rate hikes at the next meeting, along with further signs that inflation is still falling."
The pan-European STOXX 600 .STOXX is up 0.6%, led by the recently struggling real estate .SX86P sector and miners .SXPP.
Germany's DAX .GDAXI, France's CAC 40 .FCHI and Britain's FTSE 100 .FTSE are higher by 0.6%-0.7%.
The focus is now squarely on Friday's U.S. jobs report for May, which is expected to show a moderation in the pace of job growth and a slight increase in the unemployment rate.
Here's your opening snapshot:
(Samuel Indyk)
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FED "SKIP" EXPECTATIONS GIVE FUTURES A LIFT (0631 GMT)
European equities are set for a higher open on Friday as bets that the Fed will refrain from hiking rates in June increased, while the U.S. is set to avoid a default after the Senate approved legislation to suspend the debt ceiling.
The Senate voted 63-36 to approve the bill that had been passed on Wednesday by the House of Representatives, averting what would have been a first-ever default.
Meanwhile, a number of Fed officials this week have publicly backed a pause in the tightening cycle in June, the latest being Philly Fed president Patrick Harker, who said it was time "to hit the stop button and see how it goes".
European stock futures are welcoming the news. Euro STOXX 50 futures STXEc1 are up 0.6%, with futures on Germany's DAX FDXc1, France's CAC 40 FCEc1 and Britain's FTSE 100 FFIc1 all gaining between 0.4%-0.6%.
In corporate news, Dechra Pharmaceuticals will be in focus after the British veterinary drugmaker agreed to be taken over by Swedish investment firm EQT in a 4.88 billion pound deal.
It looks to be a quiet start on the macro front in Europe, so the main focus is likely to be on the U.S. labour market report at 1230 GMT.
Economists expect nonfarm payrolls to have increased 190,000 in May and the unemployment rate is seen ticking up to 3.5%.
(Samuel Indyk)
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MARKETS FEEL FRIDAY CHEER AS SIGNS POINT TO FED PAUSE (0554 GMT)
A risk-on rally fuelled by rising expectations the Federal Reserve will stand still on interest rates in two weeks, and by relief that the congress approved a U.S. debt-limit suspension, took hold in Asia and looked set to continue as Europe wakes up.
The U.S. Senate late on Thursday passed bipartisan legislation backed by President Joe Biden that lifts the government's $31.4 trillion debt ceiling, a day after the House of Representatives approved the bill.
And so, the U.S. averts what would have been a first-ever and catastrophic default. The Treasury Department had warned it would be unable to pay all its bills on June 5 if Congress failed to act.
Markets though seemed to have moved on to focus on what the Fed will do in two weeks as U.S. economic data bolstered the case for the Fed to stand pat.
Dovish rhetoric from Fed officials, including comments by Philadelphia Federal Reserve President Patrick Harker on Thursday that it was "time to at least hit the stop button" on rate hikes, has also helped to lift sentiment.
Futures trading indicated an 80% probability that the Fed will refrain from raising rates, compared with a 48% probability a week earlier, according to the CME FedWatch tool.
That all served as fuel for a surge in Asian markets, with the MSCI Asia ex-Japan share index .MIAPJ0000PUS set for its best day since January, while the Nikkei .N225 continued its hot run, setting the stage for an exuberant Friday for European markets.
The pan-European STOXX 600 index .STOXX, which has been languishing near two-month lows, should get a lift.
The U.S. Labor Department's closely watched unemployment report for May is due later on Friday, with the data helping to determine whether the central bank sticks to its aggressive monetary policy.
In the corporate world, Goldman Sachs plans to cut more jobs, the bank's president said, as a difficult economic environment weighs on dealmaking. In January, it let go about 3,200 employees, its biggest head count reduction since the 2008 financial crisis.
At Twitter, the head of trust and safety, Ella Irwin, told Reuters on Thursday that she has resigned from the social media company, which has faced criticism for lax protections against harmful content.
Key developments that could influence markets on Friday:
Economic events: French industrial output data; U.S. nonfarm payrolls
(Ankur Banerjee)
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