The Nasdaq has stopped just short of a 20% rebound from its June low that would meet the technical definition of a bull market. The dollar and Treasuries were steady. Oil and gold slipped and Bitcoin recouped much of yesterday's losses.

In premarket trading, US-listed Chinese stocks slipped after China said it would cancel climate and military talks with US, as part of a countermeasure package following House Speaker Nancy Pelosi’s trip to Taiwan. Among Chinese internet stocks lower were Alibaba -3.3% as investors continue to digest earnings; Nio -1%, Baidu -0.8%, Pinduoduo -2%, JD.com -1.9%, NetEase -1.8%, Li Auto -1.5%, XPeng -1.8%, Bilibili -1.6%. Here are some of the biggest U.S. premarket movers today:

• Warner BrosDiscovery (WBD US) shares slump 11% in premarket trading after the media company reported a net loss and sales for the second quarter that missed the average analyst estimate. The recently merged media giant recorded about $4 billion in charges related to the deal, including amortization and restructuring expenses, wiping out profits.
• Virgin Galactic (SPCE US) shares tumbled 13% in premarket trading after the space tourism company announced another delay to the launch of their commercial service, pushing it back to the second quarter of 2023.
• Amgen (AMGN US) delivered a solid set of results and the biotech giant’s acquisition of autoimmune disease drug maker Chemocentryx looks to make sense, analysts say.
• Kellogg (K US) raised to neutral from underweight at Piper Sandler with the broker saying a “way-too-early” sum-of-the-parts assessment of the cereal giant ahead of its planned split suggests it is fairly valued.
• Block (SQ US) shares fall 6.5% in premarket trading after gross payment volume for the second quarter missed the average analyst estimate. Analysts noted signs of slowdown in the Cash App business in July.
• Yelp (YELP US) boosted its full-year outlook on the back of better-than-expected 2Q sales, adjusted Ebitda and margin, prompting Evercore ISI and Baird to raise price targets. Analysts say the online review company’s new products are bearing fruit, with demand from advertisers still robust despite macro risks.
• DoorDash (DASH US) shares jumped 13% in premarket trading, after the food delivery company reported stronger-than-expected second-quarter results. Analysts were optimistic about the “stickiness” of the company’s product and noted that demand seems to be holding up despite inflationary and macro pressures.
• Cloudflare (NET US) shares soared as much as 23% in US premarket trading as analysts hiked their targets on the software company, highlighting that the firm was able to keep growing in a tough macroeconomic environment. Cloudflare also boosted its revenue guidance for the full year.
• Cryptocurrency-exposed stocks are gaining in premarket trading after Bitcoin rose as much as 4% to trade above $23,000. On Thursday, BlackRock partnered with Coinbase to make it easier for institutional investors to manage and trade Bitcoin.
• Doximity’s (DOCS US) guidance cut will provide fuel to bears on the online healthcare platform, analysts say. Shares in the firm fell 14% in after-hours trading on Thursday following its results.
• Twilio (TWLO US) shares drop 7.9% in US premarket trading after the software firm’s guidance and margins disappointed, with questions over the latter metric ongoing, analysts say.
• Ventas (VTR US) reported strong revenue growth in its second-quarter earnings, as expense pressure weighs on third-quarter guidance. Analysts retain a positive long-term outlook on the stock, as an aging population drives demand for Ventas’ senior housing portfolio. .

A global equity index is set for a third weekly advance and near a two-month peak in a recovery from bear-market lows, helped by resilient US company profits. The durability of the bounce remains in doubt as central banks around the world speed up rate hikes, and the inversion between two-year and 10-year yields remains near the deepest since 2000, harkening imminent recession.

The stock rally is being fed by speculation that runaway inflation may have peaked and the Fed can temper interest-rate increases. With US payrolls Friday data a closely-monitored Fed indicator, an above-expectation reading could provoke a negative reaction by traders because it would be seen as emboldening the US central bank to press on with outsized hikes.

“The equity market in the last month has managed to turn both hawkish and dovish data into a reason for cheer, which obviously is rather self-serving and unsustainable in the medium term,” said James Athey, investment director at Abrdn. “I would continue to be a seller of equity strength given my view that the path for the economy most certainly remains down.” 

Looking at today's main event, the July payrolls report at 8:30am ET is expected by economists to show job creation slowed from past year’s pace to 250k, with crowd- sourced whisper number currently 225k; unemployment rate expected to remain at 3.6%. Goldman goes even farther and predicts that a negative print would lead to a powerful stock rally: according to Goldman flow trader John Flood "we are firmly in a BAD is GOOD and vice versa tape right now." He adds that whereas Goldman estimates a +225k headline print (vs +372 prior and +250k consensus). In this context:

• The market "will get hit hard (-200bps) on a print north of 372k (>prior reading) as sooner than expected “fed pivot” convos will quickly be shelved."
• On the other hand, "a relatively inline print (150k – 300k) mkt wont react to as traders will sit on hands and wait for CPI."
• Finally, "if jobs are lost and we get a negative print, tape will rally 100+bps as FOMO/COVER chase will (remain) on w/ early 2023 rate cut discussions gaining more momentum."

In Europe, the Stoxx 50 index fell 0.3%. DAX is flat but outperforms peers, CAC 40 lags, dropping 0.4%. Media, energy and consumer products are the worst-performing sectors. Here are the top European movers:

• WPP shares fall as much as 7.3%, the most since May, despite the advertising agency raising full-year sales guidance. While the company surpassed consensus estimates on organic revenue growth in the first half, Goldman Sachs says the magnitude of the beat is smaller than peers.
• London Stock Exchange shares rise as much as 2% to an almost four-month high, after the financial information company reported interim results and announced a £750m share buyback.
• Hargreaves Lansdown shares gain as much as 5.7%, the most since March, as its reported pretax for the full year fell below analysts estimates.
• Vestas Wind Systems rises as much as 5.5% after US Democratic senators agreed on a revised version of an ambitious tax and climate bill.
• Pets at Home shares gain as much as 4% to the highest intraday since April 6, after the UK retailer reported 1Q like-for-like sales growth of 6%, beating RBC’s estimate of 3%.
• Rheinmetall shares fall as much as 6.9% after the defense and auto manufacturer published 2Q earnings and confirmed its lowered FY sales outlook reported last week.
• Deutsche Post rises as much as 6.5%, the most in more than four months, after the company reported Ebit in the second quarter that beat analysts estimates and confirmed its 2022 guidance.
• Bpost shares rise as much as 9.2% to the highest level since Jan. 26 after what KBC says were a “very good set of result.”
• Pirelli gains as much as 6.4%, the most intraday since March 9, after the tiremaker reported 2Q results ahead of expectations and raised its guidance for revenue and net cash generation, with Oddo BHF noting the new outlook should reassure.

Earlier in the session, Asian stocks rose, boosted by a rally in Taiwan and gains in the region’s technology shares.  The MSCI Asia Pacific Index climbed as much as 0.9%, with TSMC and Sony among the biggest contributors to its advance. Tech was also the best-performing sector on the gauge, followed by materials. Taiwan’s equity benchmark was the biggest gainer in the region, jumping 2.3%. Semiconductor and shipping stocks climbed, helping the Taiwan Stock Exchange Weighted Index recoup all the losses fueled by US House Speaker Nancy Pelosi’s visit to the island earlier this week. That’s even as China likely fired missiles over Taiwan for the first time during its biggest military drills around the island in decades.

Investors will continue to assess the ongoing corporate-earnings season and the Fed’s monetary-tightening path. US payrolls data on Friday is the next key data point for global markets; Cleveland Federal Reserve Bank President Loretta Mester reiterated Thursday the US central bank’s determination to quell inflation.  “A recession with the rising inflation rates is not going to be a constructive environment for the stock market. So I still regard this as a bear-market rally,” Jeffrey Halley, senior market analyst at Oanda Asia Pacific, said in an interview with Bloomberg TV.  Stock gauges in Japan and South Korea also rose, helped by positive earnings reports. China’s Alibaba Group Holding Ltd. posted better results than many investors feared, avoiding a sharp sales contraction. Still, the stock slumped in Hong Kong after rallying for two days ahead of the earnings report.

Australia's S&P/ASX 200 rose 0.6% to close at 7,015.60, driven by mining and health shares. The benchmark climbed for a third consecutive week, up 1%. Lithium stocks extended their rally on Friday as industry executives said they were inundated by bankers and brokers at the Diggers & Dealers Mining Forum this week, talking up deals to secure some of the estimated $42 billion worth of investment needed for metal producers to meet their goals. Meanwhile, Australia’s central bank lifted its inflation and wage growth forecasts while predicting unemployment will remain under 4% through mid-2024, underscoring the need for even tighter monetary policy. In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,728.47.

In FX, the Bloomberg Dollar Spot Index rose 0.1% in quiet trading, snapping a two-day decline. CHF and NZD are the strongest performers in G-10 FX, SEK and AUD underperform. The euro eased as much as 0.3% to 1.0219, weighed by weaker European share prices, while the yen slipped as traders unwound a recent streak of bullish bets on the currency

In rates, the Treasury yield curve was barely changed, with two-year yields rising 1.9 basis points higher to 3.06%. In Thursday’s US trading session two- and 10-year yields ended down 2 basis points while the 2s10s spread remained about 37.6bps in inversion. US yields are cheaper by as much as 2bp across front-end of the curve with spreads broadly within 1bp of Thursday’s closing levels; 10-year yields around 2.70%, cheaper by 1bp on the day and outperforming bunds and gilts by ~2bp each. European bonds eased, with the two-year German Schatz yield rising 2 basis points to 0.36%, while the 10-year Bund yield rose 3.1 basis points to 0.83%. Gilt curve bull-flattens with 2s10s widening 2.5bps after BOE’s Huw Pill cautioned against assuming a 50-bps hike in September. Short-end bunds decline, with the yield on the 2-year up about 2 bps.

WTI trades within Thursday’s range at around $88. Spot gold falls roughly $4 to trade at ~$1,787/oz. Most base metals trade in the green; LME nickel rises 1.8%, outperforming peers. LME lead lags, dropping 0.1%.

In today’s docket of economic data, the payrolls report in the US will be in the spotlight with June consumer credit out later in the day. In Europe, we will get June industrial production for Germany, France and Italy and Q2 private sector payrolls, wages and June trade balance for France. In central banks, speakers will include Fed’s Barkin and BoE’s Pill.

Market Snapshot

• S&P 500 futures little changed at 4,154.00
• STOXX Europe 600 down 0.2% to 438.32
• MXAP up 0.8% to 161.72
• MXAPJ up 0.9% to 527.30
• Nikkei up 0.9% to 28,175.87
• Topix up 0.9% to 1,947.17
• Hang Seng Index up 0.1% to 20,201.94
• Shanghai Composite up 1.2% to 3,227.03
• Sensex up 0.2% to 58,442.88
• Australia S&P/ASX 200 up 0.6% to 7,015.56
• Kospi up 0.7% to 2,490.80
• German 10Y yield little changed at 0.82%
• Euro down 0.2% to $1.0227
• Gold spot down 0.2% to $1,787.20
• U.S. Dollar Index up 0.24% to 105.95

Top Overnight News from Bloomberg

• Stocks in Europe and US equity futures struggled for direction as investors brace for the monthly US jobs report that’s likely to enliven the recession debate. The dollar rebounded from two days of declines.
• China announced it would halt cooperation with the US in a number of areas following US House Speaker Nancy Pelosi’s trip to the US, including working-level talks on climate change and defense.
• Bond giant Pacific Investment Management Co. saw outside clients pull money for a second straight quarter amid a global bond selloff.
• Investors have resumed shunning global stocks in favor of bonds, according to Bank of America Corp. strategists, who say the time is right to step back from US equities after the strong rally in July.
• German power prices rose to a record as utilities are increasingly reducing electricity output in western Europe because of the hot weather.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pacific stocks traded mostly positive but with gains capped amid geopolitical and growth slowdown concerns, while markets also await the upcoming US NFP jobs report. ASX 200 was lifted by strength in mining stocks after gains in underlying metal prices although the energy sector lagged due to the recent oil pressure. Nikkei 225 surpassed 28k after stronger-than-expected Household Spending and firmer wage growth. Hang Seng and Shanghai Comp lacked firm direction with Hong Kong stocks indecisive after Alibaba failed to replicate the strength in its ADRs post-earnings and with sentiment clouded by geopolitical risks

Top Asian News

• Hong Kong to Announce Hotel Quarantine Cut as Soon as Monday
• Japan’s Kishida to Reshuffle Cabinet as Soon as Aug. 10: NHK
• Seazen Says It’s Wired Funds for $200m Dollar Bond Due Aug. 8
• Indonesia’s GDP Surprise May Not Be Enough to Sway BI to Hike
• SpaceX Rocket Launches South Korea’s First Mission to the Moon
• Copper and Zinc Push Higher on Tightening Supply Backdrops

European bourses are under modest pressure in wake of China taking countermeasures against "Pelosi's invasion of Taiwan", Euro Stoxx 50 -0.4%. However, as we await the key US Labour Market print (newsquawkperformance is fairly contained overall preview available) before next week's CPI. Currently US futures are lower by circa. 0.1% in narrow ranges amid thin summer conditions and a limited European schedule.

Top European News

• German Power Climbs to Record as Plants Start to Buckle in Heat
• UK House Prices Fall for First Time in a Year as Crisis Bites
• Solvency II Plans Open Door to UK Insurance Buyback Bonanza
• Italian Industry Output Slumps as Election Uncertainty Mounts
• Vestas Surges as US Tax and Climate Bill Passes Major Hurdle
• WPP Shares Drop After Outlook Upgrade Fails to Live up to Peers

FX

• DXY trades on a firmer footing and tested 106.00 as China announced sanctions against House Speaker Pelosi; CNH saw some weakness.
• EUR and GBP are posting mild losses vs the Buck, but the EUR sees slightly more of a downside bias vs the GBP
• Activity currencies hold a mild downside against the Buck, with more pronounced losses seen as reports of Chinese sanctions against Pelosi dented sentiment.
• Haven FX have climbed up the G10 ranks following the deterioration in sentiment.

Fixed Income

• Pre-BoE core consolidation has dissipated and the flattening bias is back in play, albeit, only incrementally so with NFP ahead.
• Bunds are towards the mid point of a relatively contained 60 tick range which is capped by nearby support/resistance.
• OATs are in-fitting directionally but at the lower-end of ranges ahead of Fitch's review of France; currently, AA Negative

Commodities

• Crude benchmarks are under pressure amid the mentioned countermeasures taken by China and also as Taiwan reports no/limited ships/aircraft impact from China drills
• WTI and Brent lower by circa. USD 0.20/bbl and towards the bottom-end of the session's parameters.
• China's market regulator recently carried out investigations in Shanxi, Inner Mongolia and Shaanxi, 3 major coal-producing provinces, to further supervise and regulate thermal coal prices. 18 coal companies were suspected of bidding up coal prices, accord.
• Spot gold is softer and incrementally losing its allure as the USD picks up while remain mixed

US Event Calendar

• 08:30: July Change in Nonfarm Payrolls, est. 250,000, prior 372,000
  • Change in Private Payrolls, est. 230,000, prior 381,000
  • Change in Manufact. Payrolls, est. 20,000, prior 29,000
  • July Unemployment Rate, est. 3.6%, prior 3.6%
  • Underemployment Rate, prior 6.7%
  • Labor Force Participation Rate, est. 62.2%, prior 62.2%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.3%; Average Hourly Earnings YoY, est. 4.9%, prior 5.1%
  • July Average Weekly Hours All Emplo, est. 34.5, prior 34.5
• 15:00: June Consumer Credit, est. $27b, prior $22.3b

DB's Jim Reid concludes the overnight wrap

Welcome to another payrolls Friday which after a week of better US data on balance, probably isn’t set up with the market as worried as it could have been. There will be some concerns that continuing claims picked up last week (as released yesterday) but it’s fair to say the market is probably going into today’s print less worried about it than it was at the start of the week.

Yesterday was in truth the dullest day of the month so far after three action packed days even with a well flagged 50bps hike, but with a five quarter recession call, from the BoE being the obvious highlight.

US yields did rally across the curve but the moves were much smaller than we’ve seen earlier this week. The 2yr (-2.2bps) eased a touch more than the 10yr (-1.7bps). This came alongside hawkish comments from Cleveland Fed’s President Mester who stuck with her preference for rates to get above 4%, but now potentially preferring to frontload the hikes relative to her view in June’s summary of economic projections. The next edition is due at the September FOMC.

It was a mixed-bag day for the S&P 500 (-0.08%). Energy (-3.60%) continued to be the worst performing sector amid gloom in oil, with WTI losing -2.78% and trading below $90 per barrel and Brent (-3.25%) also down, but it was among 3 other sectors to finish the day lower including staples (-0.79%) and healthcare (-0.49%), while discretionary (+0.54%) and IT (+0.42%) drove the index higher as earnings took over given the lack of a significant macro driver.

Earnings also largely pulled the Nasdaq (+0.41%) ahead of other benchmarks as well, as the Dow Jones declined by -0.26%. Alibaba’s (+1.88%) revenue beat and a fairly optimistic take on consumer trends earlier in the session helped. Other notable movements on the day included Coinbase (+10%), which surged after news it is to partner with BlackRock to improve Bitcoin trading for institutions. But with 423 members of the S&P 500 now reported earnings for this season, the results-driven stories may fade in the coming days.

As mentioned at the top there was some disappointment from the claims numbers in the US which impacted sentiment a touch. While initial claims came in line with the median Bloomberg estimate of 260k, the upside surprise in continuing claims (1416k vs 1385k expected) were notable and remember that our US economists have pointed out that this series is a better gauge when it comes to forecasting imminent recessions. This fly in the job's market soup comes after several Fed speakers have highlighted the continued tightness in the labour market this week, and with the ISM employment gauges surprising on the upside. So this puts today’s payrolls report solidly top of mind for markets from both a growth and monetary policy perspective. Our US economists expect a 250k print, down from 372k in June but enough to tip the unemployment rate lower to 3.5% from 3.6%. Consensus is also at 250k.

Some softness in yields and risk assets also started around the time of the BoE’s meeting yesterday that brought a fairly gloomy set of economic projections along with the widely expected +50bps hike, the largest since 1995, and a potential roadmap for active QT. Our UK economists review the meeting here and point to three key takeaways – inflation risks outweighed growth concerns, there is less reliance on medium-run projections and fairly unconstrained forward guidance. Our economics team continue to see +50bps in September and +25bps in November, marking a peak of 2.5% for the Bank Rate.

Briefly diving into the forecasts that dominated the headlines, the projections showed expectations of a prolonged contraction starting Q4 this year, with a -2.2% GDP decrease between then and Q2-24. So five quarters of recession predicted. What on earth would happen if the Fed predicted that? Inflation expectations also got a notable uptick of +200bps, and is now projected to peak at 13% in Q4 this year. While that was quite a mix for investors to digest, as our UK economists point out the Bank explicitly underscored it would assign less weight to more uncertain projections these days. That also further emphasises the importance of the next prime minister’s (results on September 5th) fiscal policy. 2s10s briefly inverted for the first time since 2019 as markets got on board with the recession story. The 2yr dropped by roughly -20bps from session’s highs at one point before closing only marginally lower (-0.5bps). The long end declined a bit more, with the 10y closing at -2.4bps, and the 2s10s finishing the day at 10bps, down -1.9bps. Nevertheless, breakevens surged by +6.2bps and the pound saw a U-turn from a nearly -1% loss in the aftermath of the meeting, recovering nearly to the level it held in early European trading.

The rest of major European bond markets also saw a rally for yields but more catching up to the late previous night US rally than anything else, with those for Bunds (-7.2bps), OATs (-8.6bps) and BTPs (-8.2bps) all lower. Falling yields supported equities in the region, as the STOXX 600 (+0.18%) was propelled by materials (+1.22%), helped by Glencore’s results, IT (+1.07%) and discretionary (+0.96%) stocks. Energy (-1.34%) and real estate (-1.18%) were the main outliers on the downside and 66% of index’s members finished the day higher.

Over in Asia, stock markets are trading higher this morning as markets appear to be unfazed by China’s military drills around Taiwan. As I type, the Kospi (+0.81%) is leading gains in early trade with the Nikkei (+0.71%) not far behind. Elsewhere, the Shanghai Composite (+0.28%) and the CSI (+0.37%) are also in positive territory whilst the Hang Seng (+0.06%) is swinging between gains and losses. Meanwhile, oil futures are slightly higher and reversing earlier losses as we go to print.

Looking ahead, equity futures in the US point to further gains with contracts on the S&P 500 (+0.24%), and the NASDAQ 100 (+0.30%) higher.

Early morning data showed that Japan’s household spending (+3.5% y/y) increased for the first time in four months in June (v/s +1.5% expected) and compared to a -0.5% decline in May. Separate data showed that real wages in Japan (-0.4% y/y) slipped for the third straight month in June (v/s -1.3% expected) as consumer prices advanced faster than nominal wages (+2.2% y/y, +1.9% consensus) which recorded its strongest growth in four years.

Elsewhere, the Reserve Bank of Australia (RBA) in its monetary statement this morning upgraded its inflation and wage growth forecasts while predicting the nation’s unemployment rate would fall further by the end of this year. The central bank in its statement revealed that it sees headline inflation reaching 7.75% by the end of 2022 and assumes the key interest rate will reach 3% by December from 1.85% at present and then “decline a little” by end-2024. Additionally, it estimates the jobless rate will reach 3.25% from the 3.75% forecasted earlier in May.

In today’s docket of economic data, the payrolls report in the US will be in the spotlight with June consumer credit out later in the day. In Europe, we will get June industrial production for Germany, France and Italy and Q2 private sector payrolls, wages and June trade balance for France. In central banks, speakers will include Fed’s Barkin and BoE’s Pill.