A look at the day ahead in U.S. and global markets from Mike Dolan
The first reality check on July's jarring U.S. employment report suggests rising recession fears were overstated, allowing stocks to claw back nearly all the week's withering losses and volatility gauges to subside to more normal levels.
It's been a hair-raising ride, but Thursday's 2.3% jump in the S&P500 marked its best single day in more than 18 months and brought the losses for the week so far to a modest 0.5%. While that would still mark the longest weekly losing streak in almost a year, Friday has yet to play out.
Villains of the week's piece, the VIX fear gauge of stock volatility and Japan's yen both calmed down - the former to within 4 points of its 30-year mean and the latter to settle just above 147 per dollar.
But the unexpectedly large drop in weekly U.S. jobless claims was the clear trigger for Thursday's rally. And that now biases the debate about July's worrying unemployment rate rise toward rising labour force participation and weather-related quirks, rather than outsize job shedding per se.
With a thin diary on Friday and next week's U.S. July inflation report now on the radar, futures market have turned more equivocal about whether next month's expected Federal Reserve rate cut will be a quarter or a half point.
Some 38 basis points of easing are now priced for September, with 100 bps over the remainder of the year. Ten and 30-year Treasuries shrugged off the week's weak auctions and yields on both slipped again on Friday, the 10 year subsiding back below 4%.
Fed policymakers seem increasingly confident that inflation is cooling enough to allow rate cuts ahead.
"All the elements of inflation seem to be settling down," said Richmond Fed boss Thomas Barkin. "I'm relatively hopeful based on the conversations I'm having that that's going to continue."
Futures on Wall Street's main stock indexes were all up between 0.5% and 1% before Friday's open.
Despite some wild single stock moves through the bumpy earnings season, LSEG data shows annual profit growth for the S&P500 tracking 13.8% for the second quarter - two points higher that pre-season estimates.
Eli Lilly (NYSE:LLY) was the standout on Thursday. Its shares jumped almost 10% after the drugmaker raised its annual profit forecast as sales of its popular weight-loss drug Zepbound crossed $1 billion for the first time in a quarter.
As eyes drift back to the inflation picture, China's deflation scare eased somewhat as consumer prices stayed positive at an above-forecast 0.5% last month.
But to the extent that Chinese producer prices matter more for inflation around the world, the continued annual deflation in factory gate prices may be more significant.
In the slipstream of Wall Street's surge on Thursday, stocks in Europe and Japan gained ground today too - the latter closing the week down just over 2% after an eye-watering 10%-plus round-trip on Monday and Tuesday.
China's mainland benchmark underperformed and closed slightly in the red.
In deals, British investment platform Hargreaves Lansdown agreed to a 5.44 billion pound ($6.94 billion) takeover by an international consortium, which is betting on grabbing market share in the increasingly competitive UK wealth market.
Elsewhere U.S. politics continued to throw a shade on the remainder of the year.
Republican candidate Donald Trump said on Thursday that U.S. presidents should have a say over Fed decisions, the most explicit indication so far of his interest in infringing on the central bank's independence should he regain the White House.
"I made a lot of money, I was very successful, and I think I have a better instinct than in many cases, people that would be on the Federal Reserve or the chairman."
And yet opinion polls and betting markets suggest he may not get the chance to act that out after November's election.
Democrat Kamala Harris leads Trump 42% to 37% nationwide, according to an Ipsos poll published on Thursday. And she is two points ahead in the seven closest swing states, which are among a handful of states likely to decide the election, according to another poll.
The PredictIt betting market site now puts the chances of Vice President Kamala Harris beating Trump in November at about 57% - 11 points clear of the former president.
The first televised debate between the two is scheduled for September 10.
Key developments that should provide more direction to U.S. markets later on Friday:
* Canada July employment report, June industrial output
* US corporate earnings: AMC Networks (NASDAQ:AMCX), Evergy (NASDAQ:EVRG), EchoStar, Trade Desk (NASDAQ:TTD), Nikola (NASDAQ:NKLA) etc
(By Mike Dolan, editing by Sharon Singleton; mike.dolan@thomsonreuters.com)