Mike Dolan takes a look at the day ahead in the U.S. and global markets.
After almost a month on the back foot, the U.S. dollar is on the rise again and shaping up for its best week since March.
A darker inflation picture in Europe, China's economic stumble and falling interest rates, and Federal Reserve hawkishness ahead of its annual Jackson Hole symposium next week are all conspiring to lift the dollar back.
The dollar's index hit its highest since mid-July on Friday, with China's offshore yuan sliding to a 3 month low ahead of expected interest rate cuts there on Monday.
Chinese easing contrasts with Fed soundings. St. Louis Fed President James Bullard said he was leaning to another 75 basis point bp hike next month and he would like to get the 2.25 -- 2.5% Fed rates up to 4% by the end of the year. I don't understand why you want to drag out interest rate increases next year. The economy appears stronger than many markets had suspected, after impressive weekly job readings and surprising optimism in the Philadelphia Fed'sFed's manufacturing gauge for August.
Market pricing bounced back overnight toward a bigger Fed hike, with about 50 50 chance of 75 bp or 50 bp moves next month assumed - even as San Francisco Fed chief Mary Daly warned that it was important to ensure that we don't overdo policy. Ten-year U.S. Treasury yields rose to their highest since July 21 and U.S stock futures fell by almost 1%, along with similar losses in Europe.
After Britain had a 10% inflation shock earlier in the week, the euro zone price picture darkened on Friday.
German producer prices soared by 37.2% in the year through July, their biggest increase on record year-on-year and month-on-month as energy costs skyrocket due to the Ukraine war. In more than seven years, Japan recorded its fastest consumer price inflation as price pressures expanded beyond food and energy.
There was a little bit of relief in energy prices on Friday. Oil prices fell back after two days of gains and crude headed for weekly losses due to a strong dollar and worries about a global economic slowdown.
Key developments that may provide market direction on Friday: