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FOOTSIE SHINES IN GRIM WEEK FOR EUROPE (1200 ET/1600 GMT)
The STOXX 600 index ended this session and the week on a 0.8% drop which seems to suggest that the summer rally is running of fuel.
That might not come as a surprise for many strategists, such as Citi's, who argued in a recent note that "the current rally in risky assets is likely a bear market rally."
More macro gloom was delivered on Friday by Germany which saw producer prices jump at the fastest pace on record in July while angst about a possible cut in Russian gas supply this winter lingers on.
A quote from the Finance Ministry's report encapsulates the mood pretty well: "the outlook for the further development (of the economy) is currently noticeably gloomy."
The mood isn't better in Britain which looks on course for recession with inflation jumping above 10%, wages lagging far behind price growth and consumer confidence sinking to a record low.
But while the pound got a proper beating with a 1.1% plunge and is set for its worst weekly loss versus the dollar since September 2020, UK equities outperformed with a 0.1% gain.
As AJ Bell analyst Danni Hewson explained in a note, a lower pound "is actually good news for a globally orientated FTSE 100 as it flatters the relative value of overseas earnings."
Or as IG analyst Joshua Mahony put it in his afternoon note, "the FTSE 100 has managed to perch itself on an island of green, with a collapse in the pound helping to avoid the seemingly inevitable drop into the surrounding red sea."
The footsie has gained 1.7% so far this month and 2.2% this year while Europe's STOXX 600 has lost 0.2% in August and 10.3% in 2022.
Looking at next week and at the broader market, Barclays' European equity strategy team argues that there will be a lot at stake at the Federal Reserve's Jackson Hole conference.
"The key for equities is whether Powell will push back against the view of a 2023 easing cycle and guide towards a higher terminal rate, or if he keeps optionality," they wrote.
(Julien Ponthus)
INFLATION STILL A NATIONAL THING, NOT GLOBAL (1108 EDT/1508 GMT)
With all eyes on rising consumer prices, anywhere and everywhere, BDSwiss Group's Marshall Gittler reminds us after the UK's shocking number above 10% that there is no such thing as global inflation.
Using regression analysis, Gittler examined which country or region might follow the UK's jump in headline inflation. The euro zone came first, followed by New Zealand and Switzerland, said Gittler, who is head of investment research at BDS.
Oil prices, shipping costs and semiconductor shortages are universal, but each country has its own problems that affect inflation, he said.
Housing, energy, food and labor are local variables as shown by the common currency in the euro zone, but 12-month inflation rates range from 6.8% in France and Malta to 23.2% in Estonia.
Services was the main item pushing up U.S. inflation in July, with energy No. 2, but in the UK energy prices were first.
This finding struck Gittler as strange as New Zealand is known for high inflation, while Switzerland has a history of relatively low inflation.
The UK inflation pattern tends to follow that of the so-called commodity currencies: New Zealand for headline, Canada and Australia for core, more than nearby France and Germany.
There are cases where headline inflation rates are closely correlated but core is inversely correlated, he concluded.
"We therefore can't draw any universal lesson from Britain's unfortunate experience. It's possible that the UK is a leading index of where global inflation is headed, but it's also possible that it's an outlier, the mirror image of Japan," he said.
More dispersion among inflation rates can be expected, and the appropriate monetary response will vary country by country, he said, giving fundamental traders more opportunities.
(Herbert Lash)
WALL STREET SLIDES AS FED TIGHTENING FEARS FESTER (1005 ET/1405 GMT)
Wall Street's main indexes are lower on Friday, with the S&P 500 and Nasdaq poised to snap four-week winning streaks, as investors gauged how much the Federal Reserve might raise interest rates when policymakers meet in September.
Nearly all 11 major S&P 500 sectors are in the red, with consumer discretionary and communication services among the weakest groups. Healthcare is just slightly green.
Growth shares are off 1.43% while value is down 0.8%. Dow transports, semiconductors and small caps are also all lower.
The yield on the U.S. 10-Year Treasury note is climbing toward 3% for the first time in four weeks, while the probability of the Fed hiking rates by 50 basis points in September remained the most likely FOMC outcome according to the market, but chances fell to 55.5%. The gap on the inverted 2-year and 10-year yield curve narrowed further.
Investors are waiting for the next big catalyst, something that will change the dynamic in the markets, says Craig Erlam, a senior market analyst at OANDA.
Skepticism abounds about a recovery that is built on some disinflationary signs combined with a healthy serving of hope.
"Now the data needs to deliver," he said. "Perhaps we're seeing signs of exhaustion which some may argue is long overdue."
The monthly options expiry may provide clues as to where the market is headed, especially after the market's strong bounce off the June lows.
The focus will be on how new contracts see the possibility of the Fed continuing its aggressive campaign to curtail inflation, said Quincy Krosby, chief global strategist at LPL Financial.
Below is a snapshot of early market prices:
(Herbert Lash)
S&P 500 INDEX: WEEKLY WINNING STREAK IN JEOPARDY (0900 EDT/1300 GMT)
CME e-mini S&P 500 futures are tumbling in premarket trade. With this, the S&P 500 index is poised to open lower and put it on track to end a four-week winning streak.
The S&P 500 last rose five weeks in a row in a streak ending in November 2021.
Friday's weakness comes after Federal Reserve officials said the U.S. central bank needs to keep raising interest rates to rein in inflation, while deliberating on how fast and how high to lift them.
In what was one of the quietest sessions so far this year on Thursday, in terms of total volume across U.S. exchanges, the benchmark index ended at 4,283.74, which put it up just 3.59 points, or 0.084%, for the week.
However, with equity index futures on the back foot on this options expiration Friday, the U.S. 10-year Treasury yield rising to a four-week high and bitcoin suffering its biggest percentage slide since mid-June, the SPX is poised to open down by nearly 1%.
SPX weakness comes in the wake of the index flirting with its 200-day moving average, and the resistance line from its early January record intraday high on Tuesday:
Traders will now be watching to see if several Fibonacci retracement levels of the January-to-June slide and the March 2020-January 2022 advance, in the 4,227.75/4,198.70 area, will now act as support.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)