Fears of job cuts see calmer market waters By Reuters

A look at the day ahead in US and global markets from Mike Dolan

The first reality check on July’s U.S. jobs report suggests growing recession fears were overblown, allowing stocks to recoup nearly all of the week’s steep losses and volatility indicators to ease to more normal levels.

It’s been a stunning ride, but Thursday’s 2.3 percent gain marked its best day in 18 months and brought losses for the week to date to a modest 0.5 percent. While that would still mark the longest weekly losing streak in nearly a year, Friday still hasn’t happened.

The week’s losers, the fear gauge of equity volatility and the Japanese yen, both eased – the former at 4 points off its 30-year average, the latter settling at just above 147 to the dollar.

But the unexpectedly large drop in weekly US jobless claims was the clear trigger for Thursday’s rally. And that’s now skewing the debate about July’s worrisome rise in the unemployment rate toward rising labor force participation and weather-related quirks rather than job losses themselves.

With Friday’s thin log and next week’s July US inflation report now on the radar, the futures market has become more equivocal on whether next month’s expected Federal Reserve rate cut will be a quarter or a half of point.

About 38 basis points of easing is now priced in for September, with 100 bps over the rest of the year. The 10-year and 30-year Treasuries rejected the week’s weak bids, and yields on both fell again on Friday, with the 10-year falling back below 4%.

Fed policymakers appear increasingly confident that inflation is cooling enough to allow rate cuts in the future.

“All the elements of inflation seem to be settling in,” Richmond Fed President Thomas Barkin said. “I’m relatively hopeful, based on the conversations I’m having, that they will continue.”

Futures on Wall Street’s main stock indexes were all up between 0.5 percent and 1 percent ahead of Friday’s open.

Despite some wild moves in one-off stocks during the bumpy earnings season, LSEG data shows annual profit growth for the S&P500 tracking 13.8 percent for the second quarter — two points higher than pre-season estimates.

Eli Lilly (NYSE: ) was noted on Thursday. Its shares rose nearly 10 percent after the drugmaker raised its annual profit estimate as sales of its popular weight-loss drug Zepbound topped $1 billion for the first time in a quarter.

As eyes turn to the inflation picture, China’s deflation scare eased somewhat as consumer prices remained positive at an above-forecast 0.5% last month.

But to the extent that Chinese output prices matter more for worldwide inflation, the ongoing annual deflation of factory-gate prices may be more significant.

On the heels of Wall Street’s rally on Thursday, shares in Europe and Japan also gained ground today – the latter ending the week down just over 2% after a 10% round trip up on Monday and Tuesday.

China’s benchmark index underperformed and closed slightly in the red.

In deals, British investment platform Hargreaves Lansdown has agreed to a 5.44 billion pound ($6.94 billion) takeover by an international consortium, which is betting on gaining market share in the increasingly competitive market of wealth in Great Britain.

Elsewhere, US politics continued to cast a shadow over the rest of the year.

Republican nominee Donald Trump said Thursday that U.S. presidents should have a say in Fed decisions, the most explicit indication yet of his interest in undermining the central bank’s independence should he regain the White House.

“I’ve made a lot of money, I’ve been very successful, and I think I have a better instinct than in many cases, people who would be in the Federal Reserve or the president.”

And yet opinion polls and betting markets suggest he may not have a chance to do so after the November election.

Democrat Kamala Harris leads Trump 42 percent to 37 percent nationally, according to an Ipsos poll released Thursday. And she is ahead by two points in the seven closest swing states, which are among several states likely to decide the election, according to another poll.

Betting market site PredictIt now puts the odds of Vice President Kamala Harris beating Trump in November at about 57 percent — 11 points less than the former president.

The first televised debate between the two is scheduled for September 10.

Key developments that should provide more direction for US markets later Friday:

* July Canadian employment report, June industrial production

* US Corporate Earnings: AMC Networks (NASDAQ: ), Evergy (NASDAQ: ), EchoStar, Trade Desk (NASDAQ: ), Nikola (NASDAQ: ), etc.

(By Mike Dolan; Editing by Sharon Singleton; [email protected])