Morning Bid: Closer to fine

A look at the day ahead in European and global markets from Tom Westbrook.

Having jumped the gun a few times, markets are again pricing in a pivot in monetary policy and might be getting closer to the mark.

Bonds are rejoicing at this week’s step-down in hiking speed at the Bank of Canada and hints the European Central Bank is getting closer to satisfied with its progress. Ten-year Italian BTPs are eyeing their best week in a decade, with yields down 73 basis points since last Friday’s close.

In Australia, where inflation roared to a 32-year high this week, 10-year government bonds closed out their best week since 1996, with the market all but convinced the central bank will stick to its downshifted 25 basis-point hike size.

Mixed but mostly disappointing results at U.S. tech giants also add to evidence that the slowdown central banks have been trying to engineer is arriving in the real economy. The U.S. dollar has put in a rare retreat this week.

Chevron (CVX.N) and Exxon Mobil (XOM.N) report in the U.S. later on Friday. In Europe Volkswagen (VOWG_p.DE), Saab (SAABb.ST) and French fund-management giant Amundi (AMUN.PA) report earnings.

In Asia, the bargain-hunter rebound in Hong Kong seems to have run its course and stocks fell. The Bank of Japan kept policy settings unchanged, as expected.

But, notably, and somewhat unusually, Euribor and Fed funds futures extended overnight gains into the Asia day. Markets now price a peak in the Fed funds rate around 4.8%, after flirting with 5% a week ago.

Ironically the moves may even reduce the likelihood of a pivot or pivot-ish hint from the Fed.

Lower bond yields loosen financial conditions, and may have the Fed preferring to sound more hawkish than dovish. Treasuries have joined the global rally, with 10-year yields down nearly 30 bps this week.

Key developments that could influence markets on Friday:

Economics: Germany, France preliminary GDP, Eurozone consumer confidence, U.S. consumer sentiment, personal income and spending, Core PCE

Earnings: Caixabank, Volkswagen, Amundi, NatWest, Danske Bank, Sanofi, Saab, Swiss Re, Chevron, Exxon Mobil