European stocks were mostly higher Thursday ahead of the start of the Jackson Hole economic symposium, while expectations-beating economic data out of Germany and China's rollout of economic support for key industries helped lift sentiment.
Revised data showed Germany's gross domestic product grew by 0.1% in the second quarter. Analysts had forecast no growth on fears that surging energy prices were curtailing activity.
The German Ifo business climate index also didn't fall as much as anticipated, coming in at 88.5 for August, beating forecasts of 87.2 in a WSJ poll.
Also helping the mood was news that Beijing was deploying a further 1 trillion yuan ($146 billion) of measures to help revive an economy struggling with a severe property-sector downturn, drought-related manufacturing slowdown and lingering Covid-19 shutdowns.
The CAC 40 was down, however, after data released Friday showed sentiment in the manufacturing sector declined in August amid increasing energy prices and slowing demand.
Markets might continue struggling to find direction as the Fed is likely to emphasize the importance of inflation control, while acknowledging the weakening of the growth cycle and the challenge for policy makers in terms of the narrowing path-way toward a soft landing, HSBC Asset Management said.
"This week, activity in markets has reflected a renewed sense of a hawkishness from the Fed," it said. HSBC AM anticipates seeing more of this from Fed Chairman Jerome Powell, and thinks the market is right to interpret the narrative in this way, he says. "In short, it points to a continued tricky phase for overall market direction."
Expectations are high for Fed Chairman Jerome Powell to continue his narrative on fighting inflation, while dissuading markets from the notion that the Fed has made a dovish pivot, TwentyFour Asset Management said.
"His core message will revolve around the Fed's resolve to bring inflation under control as its key focus even though such a policy runs the risk of pushing the U.S. economy into recession," the fixed-income specialist said.
Insight Investment expects the Fed to raise interest rates a bit higher than current market expectations.
The market is currently pricing in about 3.75% as the peak policy rate by mid-2023 and a fairly quick reversal of some of those hikes in the second half of 2023, the asset manager said.
"Our expectation is that the terminal policy rate may be higher than what is implied by the market and likely to be followed by a pause in the hiking cycle rather than a quick reversal," Insight Investment said.
Germany is at the beginning of a recession, as a contraction is already looming in the third quarter, according to KfW.
"The energy price-driven surge in inflation is depressing purchasing power and the uncertainties surrounding gas supplies in winter are unsettling businesses and private households," the German bank said.
The catch-up movement in services following the easing of coronavirus restrictions is almost complete and low water levels in the Rhine add another disruptive factor, it said.
KfW forecasts the German economy will shrink 0.3% in 2023 after 1.4% growth this year.
U.S. stock futures rose amid thin summer trading as investors waited for an update on Fed thinking at the end of the week.
S&P 500 futures lurched higher in the early hours on Thursday, helped by signs the world's fourth biggest economy may be faring better than feared. Futures began to move higher on China's injection of fiscal stimulus and better-than-expected data out of Germany.
However, the move in futures comes in thin trading conditions. For example, the previous session on Wall Street saw just 8.8 billion shares traded across the various exchanges. That was the lowest so far this year and was 26% below the daily average in 2022, according to Dow Jones data.
Activity also has been curtailed by a reluctance among some investors to make bold bets before Fed Chairman Jay Powell gives a speech on Friday at the Jackson Hole symposium.
Investors will dissect Powell's comments for clues to the direction of Fed policy, an issue that has greatly determined market trajectory of late.
"Markets maintained their holding pattern, ahead of an important couple of days which should provide further short-term directional clues," said Richard Hunter, head of markets at Interactive Investor.
Investors were also contending with a decidedly mixed bag of earnings from some erstwhile tech darlings that were released after Wednesday's closing bell. Shares in Nvidia and Salesforce were lower but Snowflake was up 17.3% after its numbers and forecasts were well-received.
The propensity for many companies to highlight economic uncertainty when delivering their earnings updates has colored the thinking of equity analysts and made some reluctant to see much more market upside for the time being.
"Our single point 4200 year end S&P 500 target reflects a balance of soft landing and recession scenarios," said Citi's U.S. equity strategist Scott Chronert in a note.
"With several months to go in the year, volatility related to market interpretation of incremental macro and rate data points should be expected," Chronert added.
U.S. economic reports on the slate Thursday include the weekly initial jobless claims and second-quarter GDP data, both due at 8:30 am ET. The GDP data also will include the preliminary reading on corporate profits for the second quarter.
The dollar fell following additional stimulus measures from China--which slightly ease global growth concerns--and a decision by the People's Bank of China to set a stronger fixing rate for the renminbi against the dollar.
These measures probably account for a slightly softer dollar and marginally better risk sentiment, although they are "not seen as game-changing," ING said.
The prospect of the Fed continuing to raise interest rates to counter inflation--which is likely to be confirmed by Fed Chairman Jerome Powell's speech at Jackson Hole on Friday--should "keep the dollar supported on dips," the Dutch bank said.
The euro remained higher against the dollar after a key survey showed German business sentiment fell by less than expected in August.
"The positive interpretation is that the weakening of the Ifo index is slowing down," ING said. "The negative interpretation is obviously that no improvement is currently in sight."
EUR/USD rose earlier after the final estimate of second-quarter German gross domestic product showed the economy expanded 0.1% quarter-on-quarter, exceeding estimates for flat growth.
Sterling could recover further against the dollar as speculators who have been betting on the dollar rising take profit on those trades, ING said.
Rising prices of sterling may prompt traders to buy back the currency, pushing it even higher. "With the market long dollars, Cable [GBP/USD] is at risk of a short squeeze," ING said.
For markets, the return to work from the August holiday is starting to look like a harsh reality check, but "none more so than for bond markets, which have more than retraced their summer gains already," Natixis said.
The prospect of a more lastingly hawkish policy stance by the Fed has replaced hopes of a dovish Fed pivot, with these hopes having faded in recent sessions, the investment bank said.
Markets are now focusing on the Jackson Hole economic policy symposium, waiting for signals, if any, from Fed Chairman Jerome Powell on Friday, Natixis said.
German 10-year Bunds reversed some of their earlier gains after better-than-expected German Ifo business-climate data, causing yields to edge up.
Oil prices ticked higher as concerns over supply tightness remain. Expectations that OPEC+ could cut output have lifted Brent prices to a three-week high.
Meanwhile, negotiations over a revival of the Iran nuclear deal have dragged on without a conclusion, undermining hopes that sanctions on Iran's crude exports could be wound down.
Separately, BP said it had shuttered parts of a 430,000 barrel a day refinery in the U.S. after an electrical fire.
Metals prices rebounded as the dollar slipped amid a risk on rally in equity markets. Three-month copper on the LME and aluminum both gained as did gold. Metals got some respite as the ICE Dollar Index--which had climbed to a 20-year high this week--fell.
Death Toll Climbs in Russian Strikes on Ukraine as Moscow Says It Foiled Terror Plot at Home
ODESSA, Ukraine-The death toll from Wednesday's Russian missile strikes in eastern Ukraine rose to 25 as Moscow claimed it had foiled a new terror plot by a Kyiv supporter at home.
Ukrainian rescue operations continued in the town of Chaplyne a day after missiles struck a train station and a residential area in the deadliest Russian attack on civilians in the country in more than a month. At least two children are among the dead, according to Ukrainian officials. More than 30 people were injured.
Energy Crisis Squeezes Smaller Firms That Power Europe's Economy
Europe's energy crisis is squeezing the small and midsize firms that form the backbone of the continent's economy, leading some business owners to curb production or close up shop.
Katrien Vandenheuvel recently decided to shutter her family's grocery store-nestled in a village outside Antwerp, Belgium-after realizing she needed to sell about 3,000 more loaves of bread every month to cover the higher natural-gas bills. The store had already been charging higher prices for pastries and cheeses than chain stores, she says. Hiking prices enough to cover expenses would have driven more customers away.
Novartis to Spin Off, List Sandoz Business
Novartis AG is planning to spin off its generics-and-biosimilars division Sandoz and list it as a stand-alone company in Switzerland, a move that will enable Novartis to focus on innovative medicines.
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