Germany Industrial Production Index; EU Summer Interim Economic Forecast; OECD Employment Outlook report launch; updates from Babcock International Group, Bang & Olufsen, Micro Focus International, Provident Financial, Hiscox.
Europe could open higher Wednesday. Dollar strengthens. Oil, gold, and metals rise.
European stock futures were pointing higher Wednesday as oil prices rose and Wall Street retreated from last week's record highs.
U.S. stock indexes had ground higher in recent weeks, lifted by signs of the economy rebounding and the labor market recovering. Inflation concerns have also eased, and major central banks have signaled that they will leave accommodative monetary policies in place for now. Investors say they are now looking for fresh catalysts, such as strong corporate earnings reports or more fiscal stimulus, to power the next leg of the rally in stocks.
"It just may be time for a little bit of a breather or a pause in the pace of equity market returns," said Chris Dyer, director of global equities at Eaton Vance. "A lot of the good news is priced in and I think that makes it a little bit more tricky for the equity markets to grind higher in the short term."
One possible factor for the market's hesitation is the rise of the Delta variant of Covid-19, said Jason Pride, chief investment officer for private wealth at Glenmede. While the variant is unlikely to provoke full-scale lockdowns, it could lead to renewed mask mandates and slow the recovery, he said.
"It has a dragging economic effect when you put in those kinds of policies," Mr. Pride said.
Investors are also keeping a close eye on the Federal Reserve, which on Wednesday is set to release minutes from last month's rate-setting meeting. The minutes could give insight into how soon the U.S. central bank might begin to taper its asset purchases or raise interest rates.
The European food and home & personal care sector may face margin pressure, said Bernstein, cutting its ratings on Lindt and Reckitt Benckiser.
While the sector has done well so far this year, Bernstein advises caution in 2H due to a margin risk. The brokerage cut its rating on Swiss chocolatier Lindt to market-perform, saying its shares look fully valued.
"Whilst it's a great company we would continue to own for the long term, in the short term we wouldn't add to the position," analyst Ivan Holman says.
Bernstein also cut Reckitt to under-perform, citing potential for weaker flu seasons, cost-price inflation and ongoing market-share losses in core categories where the company isn't launching new brands.
The U.S. dollar strengthened against the euro and weakens against the yen. The WSJ Dollar Index gains 0.3%.
JPMorgan said Friday's strong payrolls report "reinforces our view that the June FOMC was a watershed which will deliver greater and broader dollar support." The firm said "the biggest debates in client discussions about our 2H21 outlook are around the breadth of USD strength and the ability for high-beta FX to perform generally.
For us, the hurdle against such broad-based dollar weakness has only grown, not only because of a more hawkish Fed, but because the dollar has entered a more supportive mid-cycle phase, and also because tail risks have risen from the recent spread of the delta variant."
Treasurys start the week with a rally that sent the 10-year yield down to 1.369%, the third decline in four trading days.
The benchmark has lost 0.38 percentage point since its March peak of 1.749%, but it is still up 0.456 p.p. for this year. Investors seem to be embracing a more benign view of inflation amid mixed economic data.
A PMI index for the services sector comes in below expectations, after Friday's job reports surprised on the upside. More clarity on how the Fed is reading recent indicators should come in the FOMC minutes Wednesday.
Oil rose in Asian trading, amid uncertainty over the outlook for global crude production due to the current OPEC deadlock.
CBA said that while the disagreement between the UAE and Saudi Arabia may be an issue in coming OPEC+ meetings, both parties will likely find a resolution.
"We think OPEC+ will eventually agree to boost oil output for the remainder of the year," the bank said.
Gold inched higher in early Asia trade, following a dip in U.S. treasury yields overnight and amid reports indicating that bullion purchases among central banks were gathering steam. Investor demand for the precious metal may rise, following a risk-off tone for equities, ANZ said.
Base metals were mixed in Asia. Copper rebounded from a decline overnight, as a slower-than-expected expansion in the U.S. services sector signaled a sluggish recovery, ANZ said. A stronger greenback also weighs on the market, it added.
Huatai Futures said the U.S.'s and Europe's June manufacturing PMIs show the economies continue to improve, while U.S. Treasury yields remain at a relatively low level, which should be beneficial to commodities.
The three-month LME copper contract rose 0.4% to $9,350.00 a ton, while the aluminum contract fell 0.8% to $2,509.00 a ton.
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