Another rise in EU inflation is expected, PCE is in focus

It is expected that European stock markets will open marginally higher Friday, thanks to a stronger-than-expected growth rate in the UK However, gains are likely to be limited due to continued concerns about slower economic growth as central banks raise interest rates while geopolitical risks remain high.

There has been a sharp drop in major Wall Street indices on Thursday, leading to stocks falling in Asia early Friday as well. Japan's Nikkei index dropped by 2.0%, and Europe is expected to follow the same trend.

The official data from China earlier in the day showed that manufacturing activity unexpectedly increased in September above the 50-level, breaking two consecutive months of decline. However, a separate private survey by Caixin painted a very different picture, showing manufacturing PMI fell to 48.1 in September from 49.5.

FX majors

It is not surprising that the US dollar has been relatively weak lately, partly because yesterday's gross domestic product (GDP) results showed a negative 0.6% growth rate (though that was expected). The British pound is making incremental gains among the G10 set as the third quarter comes to a close. EUR/USD has rebounded over the last hour. However, the pair will likely encounter persistent resistance around the 0.9850 area and revert to the lower range towards 0.9640.

Events of the day

A hot German inflation print on Thursday suggests that if the European Central Bank wants to reduce inflation running at historic levels, it will have to become more aggressive in its approach.

Despite this, U.K. stock markets got a boost from the Q2 GDP report, which showed that the economy rose 0.2% quarter-on-quarter, up 4.4% on an annual basis, surprising markets to the upside.

Friday, there are still several economic data releases to pay attention to, including the German unemployment number as well as a more important CPI number for the Eurozone for September, which could rise close to 9.7% on an annual basis. 

There will be a lot of focus on the US Core Personal Consumption Expenditures Price Index for August, which is expected to grow 4.7% YoY versus 4.6% in July. the Fed has regarded this index as one of their preferred inflation measures.