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European stocks could open lower. Dollar weakens. Long-term Treasury yields rose. Oil down and gold is flat.
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.
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."
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.
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.
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.
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