A look at the day ahead in U.S. and global markets from Mike

Dolan

The end of a hair-raising week for the stock market has left

more questions than answers, with Thursday's bumper U.S. growth

data goosing a blistering rotation to small cap stocks as

traders brace for three major central bank decisions next week.

Before the Federal Reserve's latest policy decision on

Wednesday, the central bank gets an update on its favored

inflation gauge later today.

Core PCE prices are expected to have risen just 0.1% last

month, with the annual rate slipping to a three-year low of 2.5%

- a halving of that rate of inflation in 18 months.

Even though former New York Fed boss Bill Dudley this week

called for an immediate rate cut to get across a weakening jobs

market, futures remain nailed on for a first move in September.

Whether due to those easing bets or post-election trades or

both, this month's switch to U.S. small cap stocks from

pricey Big Tech megacaps seems to have survived the jarring

mid-week market swoon that questioned the whole complex.

Even though the S&P500 failed to sustain Thursday's

attempted early bounce, the Russell 2000 small cap benchmark

closed more than 1% higher and futures have it extending those

gains by a further 2% ahead of Friday's bell - putting it back

in sight of 2-year highs.

Small caps have now outperformed megacap indexes

by a whopping 15% since the start of this month.

Handily absorbing another $183 billion of new coupon sales

this week, Treasury yields stayed focussed on Fed easing

prospects too - with two-year yields clinging on to

4.40% after hitting 5-month lows below that level on Thursday.

The steepening yield curve calmed down a bit.

Wild swings in the stock market this week were almost

matched in the currency market too, with the yen's surge

to near three-month highs spurred by speculation the Bank of

Japan may lift interest rates there on the same day as the Fed

decides policy next week.

The yen stepped back a bit on Friday, however, with the

dollar/yen pairing recapturing 154 after a Tokyo inflation

update that saw core price gains remaining well below the BOJ's

target. The battered Nikkei, which has now lost more

than 10% since July 11, failed to catch a break and ended lower

on Friday again.

China's yuan also fell back from Thursday's peaks as

markets tried to figure out whether this week's surprising spate

of easing from People's Bank of China would be followed up by

more stimulus from Beijing to buoy the flagging economy.

Concerns about China's economy linger even after authorities

said on Thursday they would allocate 300 billion yuan ($41.4

billion) in ultra-long treasury bonds to support a programme of

equipment upgrades and consumer goods trade-ins.

Benchmark Chinese stocks eked out a small gain on

Friday.

The other major central bank meeting next week is the Bank

of England. Even though a majority of economists polled think

the BoE will cut as soon as August 1, money markets think it's

in the balance and still only ascribe a 50-50 chance.

The pound caught a toehold after retreating

to two-week lows yesterday.

Back on Wall Street, Friday's earnings calendar thins a bit

but next week brings another round of Big Tech megacap reports

to test growing concerns about valuations and big capex spends

on artificial intelligence.

Even though the overall profit growth picture remains

buoyant, some single stock earnings day moves continued to be

eye-catching.

Ford Motor's ( F ) shares tumbled over 13% to a near

six-month low on Thursday after the automaker missed estimates

as it struggles with quality-related costs and stiff competition

in its EV business.

Elsewhere, NatWest ( NWG ) gained 8% after the British bank

said it would buy Metro Bank's mortgage portfolio for 2.4

billion pounds.

Key developments that should provide more direction to U.S.

markets later on Friday:

* US June PCE inflation gauge, personal income and consumption.

University of Michigan's final July sentiment survey

* US corporate earnings: Aon, T Rowe Price, 3m, Bristol-Myers

Squibb, Centene, Charter Communications, Colgate-Palmolive,

Franklin Resources

(By Mike Dolan; Editing by Toby Chopra

[email protected])