Markets turn cautious before uncertain weekend

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

Friday’s session brought a cautious mood to the markets, ahead of a smattering of data and an uncomfortable weekend.

China’s finance minister has called a fiscal policy briefing for Saturday against a backdrop of high expectations and jittery trade. Investors and, as of Thursday, Swedish furniture shop IKEA want fiscal stimulus to reinvigorate the economy.

Markets are expecting Beijing to announce 2 trillion to 3 trillion yuan ($280-$420 billion) in new spending, and worries about whether it will deliver – after a similar disappointment from policymakers’ briefing early this week – had Chinese equities falling on Friday.

On the geopolitical front, Israel is mulling its response to an Iranian missile attack, and a retaliatory strike on oil or military targets would likely draw a sharp reaction in financial markets.

Investors in Asia were taking chips off the table.

Chinese stocks are set for a weekly drop as follow-up details on promises to support the economy have so far underwhelmed.

Hong Kong markets were closed for a holiday on Friday, leaving the Hang Seng nursing its largest weekly drop in two years as investors hit pause on one of its sharpest ever rallies. Gold was creeping higher.

British monthly GDP data is due in the European session and, while it is hard to really gauge growth from monthly figures, signs of strength in the services sector may have investors dialling back expectations for interest rate cuts.

Markets price about a 3/4 chance of a 25 basis point rate cut in November, while opinions at the Bank of England itself are also divided.

Rate cuts should come gradually, BoE chief economist Huw Pill told the Institute of Chartered Accountants in England and Wales last week, a day after Governor Andrew Bailey was quoted in the Guardian saying the central bank could move aggressively.

Among U.S. earnings, J.P. Morgan, BNY and Wells Fargo are due before the open. Tesla shares may react to the long-awaited showcase of an autonomous taxi in Los Angeles, which came with fanfare but few details on timing. Production is not set to begin until 2026.

U.S. producer prices data is also due and will frame expectations for the Federal Reserve’s preferred PCE measure out later in the month. Slightly stronger-than-expected inflation in September has, for now, knocked out market expectations of anything more than a 25 bp interest rate cut at the Fed’s November meeting.

Key developments that could influence markets on Friday:

– British monthly GDP

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– U.S. PPI

– J.P. Morgan, Wells Fargo earnings

(By Tom Westbrook; Editing by Edmund Klamann)