UK mini budget and EU flash PMIs in focus
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UK mini budget and EU flash PMIs in focus

On Friday morning, stock futures were lower as investors continued to react to the Fed's rate hike and concerns about a possible economic slowdown. Considering the latest pullback in the Dow, the stock market has fallen by about 2.4% so far this week. Also, both the S&P 500 and the Nasdaq have seen slightly sharper declines, falling by about 3% and 3.3%, respectively.

The European stock market is expected to open in mixed fashion on Friday, as investors digest a series of interest rate hikes ahead of a report by the new British administration on its fiscal plans. There was also a continuation in the upward trend in bond yields, with both the 2-year and 10-year Treasury notes reaching highs that they have not seen for more than a decade. It is worth mentioning that yesterday's move in yields was not just restricted to the UK. US and European yields also surged, with UK 2-year gilt yields back at levels last seen in 2008, while US yields are even higher, at 15-year highs, pre-financial crisis. There was slight change in the dollar index and its futures contracts on Friday, with both remaining near highs not seen in 20 years. Both of them are expected to rise 1.5% this week.

Dollar remains near two-decade highs

There was further weakness in Asian currencies on Friday as hawkish signals from the US Federal Reserve boosted the dollar, while government intervention in currency markets helped support the Japanese yen.

Flash PMIs set to paint weakening business activities

As new finance minister Kwasi Kwarteng prepares to make his first fiscal update to Parliament on Friday, a so-called "mini-Budget", the UK stock market might outperform Friday. Amid what is likely to be a difficult winter for the economy, he will be expected to provide more details about the measures he intends to take to support it.

It is worth keeping an eye on the latest flash PMIs for September which are not expected to give a particularly positive picture of the economic outlook for the month.

A number of economic data, including the Spanish GDP for the second quarter and the manufacturing and services PMI numbers for most of the continent, will be released Friday in Europe.

There is a likelihood that the manufacturing and services PMI numbers in France, Germany, and the United Kingdom will continue to deteriorate and slide into contraction territory on all measures. The reason for this is that higher energy prices further depress economic activity. CBI retail sales for September are also expected to slow, since they provide an early insight into how the UK consumer is faring in the current economic climate. There was, however, a huge divergence between the CBI measure of retail sales in August, which were quite strong, and the official ONS figures, which showed a major drop in retail sales.