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THE PARADOX OF WEAKENING GROWTH SUPPORTING THE SWISS MARKET (1214 GMT)
A weaker growth outlook could turn things around for the export-oriented, defensive Swiss index, which has underperformed the broader European market over the past few weeks.
Alongside the franc strengthening against the euro , which hurt the export-oriented Swiss market, and a spike in U.S. bond yields, pressuring "bond-proxy" defensives, BofA strategists also mentioned a broad cyclical rally since the summer as a reason for the recent weakness in the Swiss equity market. Looking ahead, they overweight Switzerland on expected weaker economic growth, lower bond yields and wider spreads.
"A roll-over in the U.S. and the euro area credit cycle in response to aggressive monetary tightening is set to lead to a global growth slowdown into H1," they say.
They add that their PMI assumptions imply 9% outperformance for Switzerland over the coming months, with projections for widening credit spreads and declining bond yields pointing to similar upside.
AN ECB TIGHTENING SLOWDOWN? DON’T GET YOUR HOPES UP (1128 GMT)
Financial markets sometimes tend to go too far.
They did it when they priced an aggressive ECB tightening path driving benchmark 10-year Bund yield above 2.5%.
They might be doing it now with the same yield at 1.8%.
As ING analysts put it, “for the ECB, this premature loosening of financial conditions seems to become increasingly uncomfortable, especially given that it is less advanced into the hiking cycle than its peers.”
“We expect the ECB to raise rates by 50 bps in December, but we think the market underestimates future ECB moves,” says Francis Yared, Global Head of Rates Research at Deutsche Bank.
“We expect core inflation to plateau for the next six months, while expansive fiscal policy will boost bond supply and a possible reopening of the economy in China will increase global demand and inflation,” he adds.
Markets had recently taken some ECB’s hawkish remarks in stride.
Wednesday’s ECB consumer survey pointed to an increase in inflation expectations over the next 12 months. Isabel Schnabel, in late November, said she saw little room to slow down the pace of interest rate adjustments. A few days later, Philip Lane sounded less convinced about having seen the peak in inflation.
Furthermore, ECB’s Peter Kazimir stated that 10% inflation was no reason to slow hikes.
OIL WEIGHS ON STOXX AS TRAVEL OUTPERFORMS (0921 GMT)
The STOXX 600 has wiped out most of the gains it had made shortly after the open and is now just 0.1% higher, bogged down by some heavyweight oil stocks.
Shell, 1% lower, TotalEnergies off 1.5% and BP down 1.6% are the three largest weights on the index on an index points basis, while the oil and gas index of stocks is down 1.2%.
Travel and leisure stocks meanwhile are outperforming, up 0.7%.
Man Group shares are the best performing, up 5.7% after the investment management company announced a share buyback of up to $125 million. Carl Zeiss Meditec AG is the worst off, down 4.9% after full year results.
Credit Suisse shares are doing nicely, earlier rising as much as 3.7% after the bank wrapped up its 2.24 billion Swiss francs ($2.39 billion) rights issue on Thursday, part of a 4 billion franc cash call. Shares were last up 2.8%.
ALL IN ON REOPENING (0755 GMT)
Soft demand and weak economic activity remain a drag on China as the world's second-biggest economy slowly but surely shakes off its COVID restrictions. The path to reopening is unlikely to be smooth and straight-forward, with some finding it difficult to break out of habits formed during the strict lockdowns.
Investors though are riding on the reopening optimism. An index of Chinese gambling stocks is up more than 60% in two weeks, all while the spectre of an economic slowdown looms large. Next week's slate of central bank meetings will show us which way the interest rates are headed.
With market events scarce until next week, the spotlight will firmly be on U.S. producer price inflation figures later in the day for more clues about the health of the U.S. economy.
Meanwhile, Keystone pipeline in the United States was shut down after more than 14,000 barrels of crude oil spilled into a creek in Kansas. Yet oil remains pinned near one-year lows, as gloom about demand offsets the Ukraine war's strain on supply.
The cause of the leak is unknown and is the third spill of several thousand barrels of crude on the pipeline since it first opened in 2010.
In the corporate world, Microsoft's $69 billion deal to acquire "Call of Duty" maker Activision Blizzard faces antitrust blowback with the U.S. Federal Trade Commission moving to block the biggest ever gaming industry deal.
Key developments that could influence markets on Friday:
Economic events: U.S. PPI data for November, Norway CPI data for November
Speakers: ECB's Christine Lagarde, Deputy Governor of the Riksbank Per Jansson
STOXX ON TRACK FOR FIRST WEEKLY LOSS IN TWO MONTHS (0745 GMT)
European equity markets are set to gain about 0.5% at the open, futures indicate, but are still on track for their first weekly loss in two months as the market awaits US PPI data later today.
Eurostoxx 50 and DAX futures are up around 0.45% with FTSE 100 futures up 0.2%, tracking an uplift in Asian markets earlier in the day.
The STOXX 600 has gained for the past seven weeks but as of yesterday's close was 1.7% lower on the week, on track for its worst week in ten.
Data showed China's producer prices falling and consumer inflation slowing on soft demand, though there are hopes that the country's shift in COVID policy will allow the economy to pick up. Eyes will be on shares in Primark owner Associated British Foods which on Friday reiterated a November forecast that profit would fall in its 2022-23 financial year.
Meanwhile Manchester United raised its 2023 total revenue guidance on the back of strong matchday revenue and British high-end homebuilder Berkeley Group Holdings retained its annual profit outlook on Friday.
