MARKET WRAPS
Watch For:
Germany Ifo Business Climate Index; ECOFIN informal meeting of
EU finance ministers; OECD Quarterly Employment Situation; Bank of
England MPC Member Gertjan Vlieghe speaks; updates from Michelin,
LVMH, Galp Energia, Ryanair, Koninklijke Philips.
Equities:
European stocks are set to open lower to start the week, at the
start of a on important week for U.S. earnings and the Federal
Reserve's policy meeting due to start Tuesday.
Stocks rallied Friday, pushing the Dow Jones Industrial Average
across the 35000 closing milestone for the first time, in a
striking rebound from major indexes' pullback earlier last
week.
All three major U.S. stock indexes finished Friday at all-time
highs after each posted weekly gains of more than 1%.
On a weekly basis, stay-at-home stocks and healthcare companies
were among those to power the market higher, in a trading pattern
that echoed the markets during the spring and summer of last year.
Etsy gained 13% for the week, while Covid-19 vaccine-maker Moderna
rallied 22%. Facebook and Twitter both gained roughly 8% or more
for the week.
Behind the rally, money managers say, was another round of
stellar earnings at American companies. Of the roughly 110
companies in the S&P 500 that had posted results through
Thursday for the second quarter, 85% topped analysts' profit
forecasts, according to FactSet.
Money managers also say that governments in the U.S. and Europe
are unlikely to implement lockdowns that restrict growth, even if
rising cases take the shine off the economic recovery.
"You have an earnings season that is going tremendously well,"
said Seema Shah, chief strategist at Principal Global Investors.
The economic outlook isn't as strong as it was three months ago,
but "the path ahead is not that negative and certainly there is a
lot of buying the dip," she added.
Some money managers said that they expect choppiness in the
markets in the months ahead, especially if more data continues to
show that U.S. economic growth peaked this spring. Still, most
expect that the U.S. economy will keep recovering.
This week will be the most important of this quarter's earnings
season - even if later weeks beat it on quantity, it will be nearly
impossible to top this slate in terms of dollars and attention.
That is because all of Big Tech will report, and those five
companies - Google parent Alphabet, e-commerce and cloud-computing
powerhouse Amazon.com, iPhone maker Apple, social-media titan
Facebook and software giant Microsoft - can determine the course of
the market at this point in history.
Stock movement is unlikely to be determined by the numbers those
companies report, especially after the big bounce on Friday;
forecasts have been more important for investors as they wait to
see how long the current boom in corporate earnings will last. And
all five companies have been careful with their forward-looking
statements during the COVID-19 pandemic.
Forex:
USD/JPY's near-term outlook may hinge on Fed Chairman Jerome
Powell's views on the economic outlook, IG said.
The two-day U.S. central bank policy meeting is set to start
Tuesday. Any cautious views on the economy by Powell is likely to
cause dollar-selling, IG said.
Still, any selling of the greenback could be short-lived since
the Fed is moving toward policy normalization, it added. USD/JPY's
downside may also be limited so long as U.S. stock markets maintain
much of their recent gains, IG said.
The U.S. dollar inches higher as Fed tapering looks more
imminent. David Jones, chief market strategist at European trading
platform Capital.com, told WSJ markets may be unprepared for the
removal of monetary stimulus.
"I do not believe that this prospect is priced in, particularly
when it comes to the US dollar." Jones said a USD comeback could
happen later this year as the ECB promises to keep rates lower for
longer. The greenback closed slightly weaker versus the euro on
Friday.
Bonds:
Treasury yields rise Friday but the 10-year lost 0.014
percentage point last week to 1.286%. The benchmark has fallen
0.157 p.p. this month. Ally Invest's Lindsey Bell points out this
would usually be an ominous sign for the overall market, but the
fact that the Fed has been a very active buyer of Treasurys to prop
up the economy requires a more careful look.
"When you zoom out, it's hard to be pessimistic," she said,
adding that fears of premature tapering could be misplaced as "the
Fed has been adamant that it's watching for more improvement in the
job market before making moves."
WSJ reports the Fed is set to accelerate deliberations next week
over how to scale back their easy-money policies as the recovery
runs faster than they had anticipated. The 10-year yield,
meanwhile, remains about half a percentage point below its March
high.
Energy:
Oil prices fell in early Asian trade as concerns over the Delta
variant's spread in some Asian markets continue to weigh.
The rapid spread of the variant could lead to more local
lockdowns and slow the speed of the economic recovery, Commerzbank
said.
The recent OPEC+ agreement to increase oil supply is also
bearish for crude in the short term, but it shouldn't weigh
significantly amid tight fundamentals, Commerzbank said. "Despite
the expansion in oil supply, the oil market will remain slightly
undersupplied until the end of the year."
Metals:
Gold rose in early Asian trade as signs of dovishness from the
Federal Reserve and the European Central Bank support safe-haven
assets, ANZ said.
The precious metal is holding above $1,800/oz, a level at which
it previously encountered resistance. Yet, with bond yields rising,
demand for the non-interest bearing metal could reduce, ANZ
said.
It said that investors are now turning their attention to the
upcoming FOMC meeting for indications of when policymakers could
scale back asset purchases.
Copper rises in Asian morning trade amid signs of healthy demand
from China. Chinese demand for the base metal rose 4.5% on year for
the first four months of 2021, Commerzbank said, citing data from
the International Copper Study Group.
The German bank noted that the global copper market was
oversupplied from January to April, but the surplus was smaller
than last year's.
Prices last year found support when the initial surplus
eventually turned into a 500,000 ton deficit. It might not happen
this year, which could weigh on prices. The three-month LME copper
contract roses 1.3% to $9,639.00 a ton.
TODAY'S TOP HEADLINES
Economy Week Ahead: The Fed, U.S. GDP, Eurozone GDP
The Federal Reserve's policy meeting and U.S. economic-growth
figures are the focus this week.
MONDAY
Senators Try to Finalize Deal on Infrastructure Package
WASHINGTON-Lawmakers pushed to finalize an infrastructure
agreement Sunday, but said they were still struggling to resolve a
dispute over how much to increase public-transit funding, a snag
that could delay their goal of advancing the bill in a Senate vote
early this week.
GOP senators had blocked efforts by Democrats to begin
consideration of the roughly $1 trillion infrastructure bill on
Wednesday, saying too much of the package remained unresolved.
Lawmakers in a bipartisan group crafting the legislation said late
last week that they hoped to finish in time to reverse that outcome
in a second vote in the next few days.
U.S. Set to Push Global Economy Over the Recovery Line
The U.S. economy likely returned to its late-2019 size during
the three months through June, helping to lift global output above
its pre-pandemic level for the first time.
Economists surveyed by The Wall Street Journal estimate that
figures to be released Thursday will show that the U.S. gross
domestic product rose at an 8.5% seasonally adjusted annual rate in
the second quarter. That likely left U.S. GDP-the value of all
goods and services produced across the economy, adjusted for
seasonality and inflation-above the $19.2 trillion level reached in
the final quarter of 2019, the last before the spread of Covid-19
pushed large parts of the global economy to shut down and contract,
they say.
China's Digital Yuan Puts Ant and Tencent in an Awkward Spot
HONG KONG-China is calling on private-sector pioneers Ant Group
Co. and Tencent Holdings Ltd. to help it develop a state-backed
digital currency that threatens the pair's highly popular payment
networks.
The People's Bank of China in recent months has accelerated the
testing of its digital yuan, putting the operators of Alipay and
WeChat Pay in a difficult spot: They have little choice but to take
part, despite the risk of eroding the huge user bases they have
grown over years. Most of China's 1.4 billion people use at least
one of the private services to make mobile payments.
Investors Are Buying American
Investors around the globe are pouring money into U.S. financial
assets, a sign of confidence that the world's largest economy
remains poised to pull through the Covid-19 pandemic better than
many others.
Private-Equity Firms Spark Bidding Wars in U.K.
Blackstone Group Inc., Carlyle Group Inc. and other buyout firms
are bidding for U.K. publicly listed companies at a faster rate
than they have in years. The reason: Post-Brexit Britain is one of
the few markets where investors think big assets are going for
cheap.
Apple, Amazon, Tesla Among the Giants Set to Post Results
Corporate giants from Apple Inc. to Visa Inc. are expected to
report their financial results over the coming week, giving
investors insight into the impact from the Covid-19 pandemic, the
Delta variant and increased business costs.
In all, 180 members of the S&P 500 are scheduled to provide
quarterly updates starting Monday, including the world's biggest
tech companies. The list also includes the restaurant companies
McDonald's Corp. and Starbucks Corp., industrial firms such as 3M
Co., Boeing Co. and General Electric Co., as well as Ford Motor Co.
and the energy heavyweights Exxon Mobil Corp. and Chevron Corp.
What the U.S. Can Learn From China's Industrial Policy
Mistakes-and Successes
For years "industrial policy"-encouraging the growth of specific
industries with government help-was a dirty word in the U.S. Now it
is one of the few things many Democrats and Republicans agree on.
Separate bills moving through the U.S. Congress with bipartisan
support would lift federal spending on research and development,
science education, and on grants for semiconductor plants by as
much as $250 billion.
The reason for this sudden outbreak of bipartisanship is no
secret: rising concerns over Chinese competition. A separate
roughly $1 trillion bipartisan infrastructure bill is being sold
along similar lines.
Credit Suisse Settles Spying Case With Ex-Executive Iqbal
Khan
Credit Suisse Group AG said it reached a settlement with a
former executive and private investigators over a spying scandal
that rocked the bank.
In fall 2019, the Swiss bank hired investigators to spy on Iqbal
Khan, a top wealth-management executive who was leaving to join
rival UBS Group AG. Mr. Khan spotted one of the investigators and
went to the police, setting off international headlines and leading
to the ouster of the bank's chief executive over the reputational
fallout.
The Delta Variant Upends the World's Pandemic Response
The Delta variant is changing calculations of governments around
the world, raising doubts about how quickly they can leave the
coronavirus pandemic behind, widening the gulf between highly
vaccinated places and the rest, and infiltrating countries that had
previously kept the virus at bay.
The variant's ability to spread more easily than previous
dominant versions of the virus has driven rapidly rising Covid-19
caseloads even in highly vaccinated countries such as the U.K. and
Israel. There, the vaccines have suppressed serious illness and
deaths. But, in many parts of the rest of the world, the pandemic
that has already sickened at least 200 million people and killed
more than four million is intensifying.
Biden Administration Weighs New Sanctions Against Belarus
The Biden administration is considering a new round of economic
sanctions targeting Belarus and its authoritarian leader after a
leading dissident appealed to U.S. officials for stronger U.S.
action, according to participants in meetings last week in
Washington.
The new sanctions would be in addition to punitive measures
imposed by the administration earlier this year and would aim to
further isolate the leader, Alexander Lukashenko, nearly a year
after he initiated a crackdown on a popular uprising in the
country, according to a Belarusian political adviser.
Covid-19 Pill Race Heats Up as Japanese Firm Vies With Pfizer,
Merck
A Japanese company has started human trials of the first
once-a-day pill for Covid-19 patients, joining Pfizer Inc. and
Merck & Co. in the race to find treatments for the disease.
Osaka-based Shionogi & Co., which helped develop the
blockbuster cholesterol drug Crestor, said it designed its pill to
attack the Covid-19 virus. It said the once-a-day dosing would be
more convenient. The company said it is testing the drug and any
side effects in trials that began this month and are likely to
continue until next year.
U.S. Intensifies Airstrikes in Afghanistan as Taliban Offensive
Nears Kandahar
The U.S. has stepped up airstrikes in southern Afghanistan amid
growing apprehension over a Taliban offensive threatening Kandahar,
the country's second-largest city and spiritual capital of the
Taliban movement.
The fall of Kandahar would deal a heavy blow to the U.S.-backed
government in Kabul, which is trying to impart calm to its citizens
as the Taliban has seized swaths of the countryside, but so far
failed to take a major city.
Write to sarka.halas@wsj.com
Expected Major Events for Monday
05:00/FIN: Jun PPI
07:00/CZE: Jul Business cycle survey (consumer/business
confidence)
07:00/SPN: Jun PPI
08:00/GER: Jul Ifo Business Climate Index
09:00/LUX: May Trade
10:00/FRA: 1Q OECD Quarterly Employment Situation
13:00/BEL: Jul Business Confidence Survey
23:01/UK: Jun Zoopla House Price Index
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(END) Dow Jones Newswires
July 26, 2021 00:18 ET (04:18 GMT)
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