MARKET WRAPS

Watch For:

Germany manufacturing orders; ECB Economic Bulletin; U.K. CIPS / Markit Construction PMI; Bank of England Monetary Policy Report, interest rate decision, and MPC meeting minutes; updates from ProSiebenSat.1 Media, Bayer, Continental, Deutsche Lufthansa, Merck, Beiersdorf, adidas, Siemens, Rheinmetall, Zalando, AXA, Credit Agricole, Pirelli & Co, Banca Monte dei Paschi di Siena, Adecco, Swisscom, Glencore, Meggitt, Rolls-Royce, WPP.

Opening Call:

Stocks could open slightly higher. Dollar rises, sterling could be little moved by BOE later. Oil gains, and gold remains flat.

Equities:

European stocks are set to edge higher Thursday as traders awaited more guidance on the U.S. economic recovery.

U.S. stocks mostly fell Wednesday on concerns that the pandemic recovery might be faltering as cases related to the Delta variant of the coronavirus surge and new economic data showed that the private sector added fewer jobs than economists expected in July.

A report from ADP showed that 330,000 jobs were added by the private sector in July, almost half the number that economists were expecting. Bottlenecks in hiring continue to hold back the labor market, according to ADP. Federal Reserve policy makers have said the recovery of the labor market is a key factor in monetary policy decisions.

Stocks have ground higher this week amid strong earnings reports and signs that the economic rebound remains under way, albeit at a slower pace than in recent months. But the spread of the Delta variant of Covid-19 and a slowdown in the rate of vaccinations is prompting some concern that authorities may reimpose or tighten restrictions on social activity and travel.

"I think the market is going to continue to move higher, but a caveat is that the pace has been unbelievable," said Larry Adam, chief investment officer at Raymond James. "We're not likely to see those kinds of returns going forward. I think we're entering an environment where the pace of returns is going to slow."

In Asia, stocks were mixed, concerns have been mounting around the coronavirus delta variant's spread in China, which is on high alert as it confronts hundreds of fresh cases.

China has sealed off residential communities, suspended flights and trains, and ordered mass coronavirus testing in Wuhan, the city where the disease was first detected in late 2019. Although China's numbers are small compared to outbreaks elsewhere, its containment strategies and the subsequent impact on its large economy are being closely watched.

In corporate news, SSE gained 3.4% Wednesday afternoon after a report claimed a major activist investor was said to be building a stake in the power generator.

Financial website Betaville cited unidentified sources as saying the unnamed activist shareholder has been accumulating a "sizeable shareholding" in SSE in the last few weeks and may soon announce its position.

Betaville said it wasn't clear why the activist was targeting SSE, but that the move is likely to trigger speculation that the company could be a takeover target for a European rival.

An SSE spokesman wasn't immediately able to comment. The rumor comes amid rising takeover interest in U.K. companies whose valuations have fallen amid uncertainty caused by the coronavirus pandemic and the U.K.'s EU exit.

Forex:

The WSJ Dollar Index rose 0.2% to break a two-day losing streak as the U.S. dollar strengthened 0.2% against the euro and the pound, and 0.4% against the yen.

Fears of sanitary measures to contain the spread of the Delta variant have fueled predictions of longer monetary easing, possibly weakening the US currency.

On the other hand, a faster recovery in the US than in other developed nations is a boost to the dollar. Capital Economics sees upside risks to its forecasts of a 4% stronger dollar by the end of 2022, including a more hawkish Fed and even global economic concerns causing a flight to safety.

Capital Economics expects the trade-weighted dollar to strengthen 4% by the end of 2022 as the U.S. economy outperforms and the Federal Reserve gradually reduces stimulus but says a more significant 10% appreciation is possible.

One potential scenario that could drive the dollar higher than expected is if the Fed tightens policy even as other central banks either loosen or keep policies unchanged, Capital Economics economist Jonas Goltermann said.

A period of heightened economic uncertainty would also provide a boost to the safe haven dollar, he said.

"On balance, while we continue to forecast a moderately stronger dollar, we think that the probability of a more significant dollar rally has arguably increased."

Sterling will be little moved by the Bank of England policy decision as a meaningful shift in the central bank's accommodative stance looks unlikely, TD Securities said.

"The tone of the meeting could signal hawkishness down the road, but any notable shifts might have to wait until the labor market furlough program has run its course," TD forex strategists said in a note.

A potential upgrade to the BOE's inflation forecast may give the pound some "positive traction" but "we don't want to overstate the case," they said.

Risk appetite will remain the key driver of sterling for now, they said.

Bonds:

In bond markets Wednesday, the yield on the benchmark 10-year Treasury note rose to 1.183%, the largest one-day yield gain in nearly a week.

U.K. gilt yields followed U.S. Treasury Yields lower after data showed U.S. private payrolls for July missed market forecasts by a large margin, clouding the economic outlook.

The 10-year Treasury yield plunged to almost a six-month low of 0.131%, according to Tradeweb, dragging the 10-year gilt yield to a 10-day low of 0.486%.

Energy:

Oil inched higher in early Asian trade, after declining overnight following EIA data that showed an unexpected rise in U.S. crude inventories. Demand concerns, particularly in Asia, could weigh on oil in the near-term. China, which is one of the world's largest importers, is seeing a rise in the number of Covid-19 Delta variant cases, CBA said.

Nearly half of China's 32 provinces are battling the Covid-19 outbreak that originated in Nanjing, it noted.

Metals:

Gold was little changed in Asian trading, after rising overnight on U.S. data that showed a weaker-than-expected increase in the number of private-sector payrolls in July but a record pace of service sector expansion.

The precious metal also pared earlier gains following some hawkish comments from the U.S. Fed, ANZ said. Vice Chair Richard Clarida said the central bank is on course to rein in its easy monetary policy later this year with some paring of its bond purchase. "This sets up an interesting phase as the market awaits the U.S. payrolls data on Friday, " it said.

Copper rose in early Asian trade, snapping a four-day losing streak as potential production issues at the Escondida mine in Chile lend support.

However, Covid-19 flare-ups in parts of China could weigh on base metal prices, ANZ said.

The bank says at least 46 cities have advised against traveling with tourist sites closing and cultural events halted. The likely travel slowdown comes amid the peak summer travel season, fuelling market expectation of poorer economic growth amid a weakening hospitality sector, ANZ said. The three-month LME copper contract rose 0.3% to $9,495.0 a ton.

Iron ore fell in early Asian trading amid market expectations of more production cuts at Chinese steel mills, ANZ said, pointing to the China Iron and Steel Association's signaling that the country plans to reduce crude steel output by a greater extent.

However, ANZ thinks that any cuts aren't likely to be too strict lest they impede economic growth. Chinese authorities recognize that "the strict top down enforcement of emissions reduction goals is seen hampering its efforts to stimulate economic growth," it said.

The most-traded September iron ore contract on the Dalian Commodity Exchange fell 2.9% to CNY1,027.0 a ton.

TODAY'S TOP HEADLINES

Senate Infrastructure Final Vote Expected as Soon as This Weekend

WASHINGTON-The Senate moved through a series of amendments to the roughly $1 trillion infrastructure package on Wednesday, with lawmakers anticipating a vote on final passage of the bill this weekend or early next week.

Since negotiators finished the 2,702-page bill last weekend, lawmakers have considered amendments offered by a mix of Republicans and Democrats to fine-tune elements of the bill. Republicans have pushed for an open-ended amendment process, while Senate Majority Leader Chuck Schumer (D., N.Y.) has called for the chamber to move quickly. Democrats are seeking to approve a budget outline for a $3.5 trillion climate and antipoverty package before the chamber departs for its August recess.

Interest-Rate Increases Could Come as Soon as Early 2023, Fed's Clarida Says

Significant fiscal stimulus this year is speeding the economy's recovery so that the Federal Reserve is able to consider lifting interest rates from near zero by early 2023, said a top central bank official in a speech Wednesday.

Fed Vice Chairman Richard Clarida said he expects that, under his current projections for inflation and employment, "commencing policy normalization in 2023 would...be entirely consistent with our new flexible average inflation targeting framework."

Robinhood Stock Price Jumps as Options Trading Begins

Small-time investors use Robinhood Markets Inc. to send stocks to the moon. Now they are setting their sights on the trading app itself.

Investors piled into Robinhood options on their first day of trading Wednesday, helping send the stock up sharply. Robinhood, which made its debut on Nasdaq last week at $38 a share, closed Wednesday at $70.39, an 85% jump from its initial-public-offering price.

U.S. Private Sector Hiring Lost Steam in July, Missing Expectations -- ADP

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08-05-21 0021ET