MARKET WRAPS
Watch For:
EU Unemployment; EU Flash Estimate euro area inflation; EU Preliminary Flash Estimate GDP; EU bank stress test results published; updates from IAG, Renault, Hermes, EssilorLuxottica, Air France-KLM, BNP Paribas, Eni, Swiss Re, Unicredit, Pearson, NatWest.
Opening Call:
European stocks could open lower. Dollar weakens. Long-term Treasury yields rose. Oil down and gold is flat.
Equities:
European stocks are set to open lower Friday after major U.S. stock indexes rose Thursday, despite new data suggesting the economic recovery has started to slow.
The market gains followed data showing gross domestic product grew by 6.5% on an annualized basis in the second quarter, up slightly from earlier in the year. Meanwhile, jobless claims, a proxy for layoffs, came in at 400,000, resuming their downward trajectory.
Both figures missed Wall Street expectations, though investors largely shrugged off the disappointment.
Matt Peron, director of research at asset management firm Janus Henderson Investors, said that data deep in the GDP report, such as consumer spending, was strong, suggesting the economic recovery remains intact despite recent concerns about the Delta variant of Covid-19.
"Consumer spending surged, while the negatives in the report were from inventory drawdown, presumably from supply shortages," said Mr. Peron. "This implies that the economy, and hence earnings which have also been very strong so far for [the second quarter], will continue for some time."
Many investors seemed to agree with the take. Stocks rose most of Thursday's session, with the Dow and the S&P 500 briefly flirting with new records before slipping from their session highs.
"Most companies are in a pretty positive situation. They have cash, they have demand. It's something that was a bit expected already from last quarter, but we're still having positive surprises," said Ludovic Subran, chief economist at Allianz.
Some U.S.-listed Chinese tech stocks recovered from recent losses after the Chinese government sought to reassure global banks and investors about the recent volatility in markets, saying that Beijing would consider the market impact of future policies.
In Asia, Chinese stocks fell in morning trade, dragged by consumer-related sectors. Sentiment has been affected by social reforms and regulatory actions that have exceeded expectations, Ping An Securities said, adding that the market may be entering an adjustment phase but remains supported overall.
Forex:
The WSJ U.S. Dollar Index slid for the fourth consecutive day, losing 0.4%, and the USD weakened against major currencies as economic recovery looks less strong than previously thought.
The Commerce Department reports annual 2Q GDP growth of 6.5%, slower than the 8.4% growth expected in a WSJ survey of economists. "US GDP data for Q2 below expectations means that the Fed would not have to rush with the tapering," Carlo Alberto De Casa, from Kinesis, told WSJ.
"The reaction on the FX market was a continuation of the bearish movement seen in the last 24 hours on the greenback," he said.
The dollar will be more sensitive to U.S. jobs data after Federal Reserve Chair Jerome Powell said the labor market still had "ground to cover" before the central bank started reducing stimulus, FXTM said.
"Given how this will drive [asset purchase] taper discussions and rate-hike expectations, we could be in for some bumpy months and increased dollar volatility," FXTM analyst Lukman Otunuga said.
In a press conference after the Fed's policy announcement on Wednesday, Powell said: "I think we're some way away from having had substantial further progress toward the maximum employment goal."
Bonds:
Long-term Treasury yields rose on economic data showing strong recovery, although not as much as expected. The 10-year yield is at 1.268%, after reaching 1.289% shortly after the economic data release.
An expected boom in USD-denominated green bonds may close the gap with Europe, which accounts for some 60% of the worldwide issuance of green bonds, Robeco said.
The sustainable investment firm says green bond issuance in the U.S. has already topped $65 billion in the first half of this year and is set to surpass 2020's record of $95 billion. Luxembourg-based Quintet Private Bank--owned by the Al-Thani family of Qatar--has pledged an initial $125 million to Robeco's green bond strategy to invest in the U.S. green bond market.
The Bank of England is expected to declare that negative interest rates are part of the monetary policy toolbox at its Aug. 5 meeting, Societe Generale said.
"The minutes [of the meeting] should report that all necessary adjustments have now been completed by the bank and the banking industry to make a negative bank rate feasible," SocGen economist Brian Hilliard said.
However, bank officials are likely to "repeat that this should not be taken as a signal that this tool will soon be used," he said.
Energy:
Oil fell in morning Asia trade as pandemic restrictions in the region could weigh on demand. Traffic is substantially below normal in big cities such as Kuala Lumpur, Bangkok, Jakarta and Singapore as the spread of Covid-19 is battled, ANZ said.
Metals:
Gold was mostly flat alongside expectations that the Federal Reserve won't abandon its accommodative monetary policies anytime soon, Oanda said, pointing to U.S. economic data that fell short of its expectations.
"A downside surprise in both GDP and jobless claims justifies the Fed's dovish stance," it said. "That should provide a short-term bullish environment for bullion."
Oanda said that if gold can exceed the $1,850/oz resistance level, technical buying could support a strong rally back towards the $1,900/oz.
Iron ore was lower in Asian trade, extending losses from the previous day on continuing efforts by Chinese regulators to cut steel production over environmental concerns, according to ANZ. Beijing's latest target is the country's real estate industry, which consumes 30% of all steel in China, the bank says.
At least five cities have been asked to "stabilize their property markets by stronger regulation," it said. Should real estate markets cool, the need for steel and iron ore would then fall as construction wanes. The most-traded September iron ore contract on the Dalian Commodity Exchange fell 4.8% to CNY1,064.5 a ton.
TODAY'S TOP HEADLINES
U.S. Import Surge Overwhelms Warehouse Space Near Ports
Surging demand for warehousing close to major ports driven by the growth of e-commerce and the flood of container imports hitting U.S. shores is making storage space harder to find and more expensive, adding new stresses to already strained supply chains.
Logistics service providers and real-estate firms say competition for warehouses close to ports such as those in Southern California and New York City is intense, pushing up rents and forcing companies to look to neighboring regions to serve shippers' needs.
Robinhood's Stock Price Falls After IPO
Robinhood Markets Inc., the trading app synonymous with hot stocks, got a cold reception from investors in its own stock-market debut.
The investing app tumbled in its highly anticipated trading debut Thursday, closing 8.4% below its initial public offering price. Robinhood stock opened at $38, matching the IPO price, and quickly fell more than 10%. The stock later climbed to approach the IPO price before falling again in the final hour of trading to close at $34.82.
Credit Suisse Failed to Act on Archegos Risks, Report Says
Credit Suisse Group AG knew Archegos Capital Management was a massive risk and didn't take actions to fix it, according to an investigation the bank commissioned into the collapse of the family investment firm.
The report released Thursday, prepared by a law firm for Credit Suisse, detailed how the bank for years granted Archegos special dispensation to avoid rules meant to protect the bank. It also ignored staff warnings before the family investment firm's collapse.
Didi Global Considers Going Private to Placate China and Compensate Investors
HONG KONG-Ride-hailing giant Didi Global Inc. is considering going private in order to placate authorities in China and compensate investors for losses incurred since the company listed in the U.S. in late June, according to people familiar with the matter.
The Beijing-headquartered company has been in discussions with bankers, regulators and key investors about how it could resolve some of the problems that emerged after Didi listed on the New York Stock Exchange on June 30, the people said. A take-private deal that would involve a tender offer for its publicly traded shares is one of the preliminary options being considered, they added.
The U.S. Economy's Prospects Looked Bright, Until the Delta Variant Surged
The U.S. economy grew rapidly in the second quarter and exceeded its pre-pandemic size, but the outlook has suddenly turned cloudier due to the fast-spreading Delta coronavirus variant.
Virus cases are rising again, particularly in parts of the country where vaccination rates remain low. The Centers for Disease Control and Prevention this week recommended that vaccinated people resume masking indoors in places with high or substantial transmission of coronavirus, leading some local governments and businesses to reinstate restrictions on activity.
Jobless Claims Resumed Decline Last Week
Workers' filings for new unemployment benefits resumed their decline last week and remain near a pandemic low as the labor market continues to recover from the pandemic, economists say.
New jobless claims dropped slightly to 400,000 for the week ended July 24 from a revised 424,000 the week before, the Labor Department reported Thursday. The four-week moving average, which smooths out volatility in the weekly figures, edged higher to 394,500.
Startup Medical-Device Acquisitions Picked Up in First Half of Year
(MORE TO FOLLOW) Dow Jones Newswires
07-30-21 0017ET
