A look at the day ahead in U.S. and global markets from Mike Dolan.
Politics may be painful, currencies restive and the earnings season full of pitfalls - but soaring U.S. Treasury borrowing rates cast the biggest pall over world markets running into the weekend.
U.S. Treasury yields from two to 30-years surged to new cycle highs on Friday as futures markets priced the Federal Reserve's peak 'terminal rate' next year at over 5% for the first time.
With the Fed entering a silent period from next week ahead of its November policy meeting, the hawkish message was unchanged from Philadelphia Fed chief Patrick Harker and he said the central bank was not done with raising rates amid very high levels of inflation.
But scale of the Treasury yield surge is being fed variously by concerns about liquidity in the market to the risk that Japan and China may soon sell some of their holdings as they sell dollars against the sliding yen and yuan, extreme moves fueled largely by rising U.S. yields.
Some banks blame the accelerated rundown of the Fed's balance sheet of bonds for the move and suspect this so-called 'quantitative tightening' may have to be slowed next year.
Japan's core consumer inflation rate accelerated to a fresh eight-year high of 3.0% in September, meantime, challenging the central bank's resolve to retain its ultra-easy policy stance as the yen's slump to 32-year lows continue to push up import costs. Dollar/yen surged close to 151 on Friday, up almost 32% over the past 12 months.
China's onshore yuan fell to another 14-year low despite major state-owned banks selling dollars on Friday.
Xi Jinping, poised to clinch a third five-year term as China's leader, will on Sunday preside over the most dramatic moment of the Communist Party's twice-a-decade congress and reveal the members of its elite Politburo Standing Committee.
Britain's pound also resumed its slide against the dollar and euro as a fresh political vacuum opened up following the resignation of Prime Minister Liz Truss on Thursday after just six weeks. The prospect of previously ousted Prime Minister Boris Johnson joining former finance minister Rishi Sunak in the race to succeed her did little to improve souring market sentiment.
The economic backdrop darkened. British shoppers reined in their spending more sharply than expected in September as they felt the hit from rising prices, and a one-off bank holiday to mark the funeral of Queen Elizabeth also weighed on retail sales figures for the month. Britain's borrowing also grew by more than expected.
After Tesla (NASDAQ:TSLA)'s disappointment earlier in the week, the U.S. earnings season took another negative twist from the digital sector overnight.
Shares of Snap (NYSE:SNAP) dropped 27% in after-hours trading on Thursday after it forecast no revenue growth in the typically busy holiday quarter, sending other internet stocks such as Meta and Alphabet (NASDAQ:GOOGL) sliding for fear rising inflation could hurt all tech companies dependent on advertising revenue.
In banking, shares Credit Suisse slid again ahead of next week's big announcement on its restructuring plans. Investors have been adding to bets that shares still have further to fall after a social media storm forced a fresh look at the Swiss lender's problems.
A four-fold increase in the amount of the bank's stock borrowed by investors over the past two weeks reflects a spike in so called "short selling" or "shorting" of the shares.
Key developments that should provide more direction to U.S. markets later on Friday:
* European Union summit in Brussels
* Japan Sept inflation, UK Sept retail sales, consumer credit and mortgage lending, public sector borrowing, euro zone Oct consumer confidence
* U.S. Canada Sept house prices, Aug retail sales
* U.S. corp earnings: American Express (NYSE:AXP), Verizon Communications (NYSE:VZ), HCA Healthcare (NYSE:HCA), Huntington Bancshares (NASDAQ:HBAN), Schlumberger (NYSE:SLB), Interpublic, Regions Financial (NYSE:RF),
* New York Federal Reserve President John Williams speaks in NY
Graphic: Dollar soars - https://fingfx.thomsonreuters.com/gfx/mkt/jnvwygemxvw/One.PNG
Graphic: BoE vs Fed Terminal Rates - https://fingfx.thomsonreuters.com/gfx/mkt/zgvobwmbypd/Three.PNG
Graphic: Japan's core inflation at 8-year high - https://graphics.reuters.com/JAPAN-ECONOMY/INFLATION/gdpzqrykmvw/chart.png
(The story has been corrected to fix the year in annotation on chart of US/UK 'Terminal Rates'.)
(By Mike Dolan, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)