Marketmind: Investors attempt risk-on rally in Q3 signoff

As the rally in Treasury yields and oil prices takes a breather, investors are attempting a bit of a risk-on rally to close out a bruising third quarter, but sentiment remains at the mercy of worries over persistently higher interest rates.

Europe wakes up to a drooping dollar and firmer Asian markets. Oil prices eased a bit but were on course for a 2% weekly gain. A slew of economic data awaits investors in Europe, with a starring role for the euro zone September inflation report.

Economists polled by Reuters expect the inflation rate across the 20 countries that use the euro to fall to 4.5% in September from 5.2% in August. The report comes after data on Thursday showed German inflation fell in September to its lowest level since Russia launched its invasion of Ukraine.

The European Central Bank is keeping a close eye on euro zone inflation data that will help dictate the interest rate path in the region and whether the central bank softens its stance.

Thursday’s German data failed to budge traders’ view that the ECB will stick to its hawkish policy, helping the euro area’s benchmark Bund yield scale a fresh 12-year peak on Thursday.

Meanwhile, Treasury yields took a bit of a breather on Friday, with the yield on 10-year Treasury notes at 4.597%, inching away from the fresh 16-year peak of 4.688% it touched on Thursday. Still, the yield on the note has gained 50 basis points this month.

Futures indicate European markets are set for a higher open but whether they can hold the gains remains to be seen.

The pan-European STOXX 600 index may have snapped a five-day losing streak on Thursday but remains on course for a first quarterly decline in four with a roughly 3% fall in the July-September period.

The euro and sterling are also set to clock losses for the July-September period, snapping both the currencies’ three-quarter winning streak.

Investors will also switch their attention to the U.S. personal consumption expenditures price index later on Friday for the latest view on inflation.

Meanwhile, Nio has held exploratory talks with Mercedes-Benz for a tie-up that would see the German automaker invest in the Chinese electric vehicle startup in exchange for technology, two people with direct knowledge of the matter told Reuters.

Key developments that could influence markets on Friday:

Economic events: UK Q2 GDP, September euro zone inflation, September France inflation, German unemployment and retail sales data

Marketmind: Investors attempt risk-on rally in Q3 signoff