MARKET WRAPS

Watch For:

UK producer prices and monthly inflation figures; UK House Price Index; EU Industrial Production; Bank of England Deputy Governor David Ramsden speaks at Strand Group event; updates from Total, Babcock International, Tele2, Aker Solutions, Barratt Developments, Tullow Oil, Provident Financial, Hiscox.

Opening Call:

European stock futures point to lower open as investors recoil from another hot U.S. inflation data report. Dollar strengthens. 10-year U.S. Treasury yields rise. Oil falls. Gold gains and copper pulls back.

Equities:

European stocks are set to open lower Wednesday after Wall Street fell following another hot inflation report and earnings out of some big banks.

Trading turned volatile in the latter half of the U.S. session around the same time Treasury yields kicked higher. Analysts pointed to new data showing inflation rising at its fastest pace in more than a decade as the key factor behind the pullback in stock and bond prices.

The increase surprised investors and analysts, who had forecast a somewhat slower pace of consumer-price growth. Still, stocks ended up rising most of Tuesday morning, led by shares of tech companies, as some investors argued the strong uptick in consumer prices was a product of big leaps in prices of used cars and airfares and would prove to be temporary, echoing the sentiment of the Federal Reserve.

Others said the inflation data highlighted broader price increases across a variety of goods and services, including rent, suggesting the economy could be on the verge of overheating unless the Fed lifts interest rates sooner. Jefferies analysts noted June's data showed the third straight month of outsize increases in core CPI, comparing the environment with the inflation-filled 1980s.

"The bottom line is that today's report showed continued breadth, strength and persistency of inflationary pressures," the Jefferies analysts said. "Given the acute inventory shortages and no sign of weakening demand, it is hard to imagine that these pressures will abate in the near term."

Stocks continue to trade near records-all three benchmarks hit records on Monday. More-bullish investors talked up the bigger economic picture following the inflation report, saying stocks remained primed for further gains.

"We think the economy will keep expanding for the foreseeable future and thus the setup is for continued market gains later this year," added Matt Peron, director of research at Janus Henderson Investors.

In corporate news, BHP could potentially hand shareholders 100% of its earnings alongside its full-year results next month, RBC reckons.

Even with a 100% payout ratio for FY 2021, equal to roughly $3.53/share in dividends, RBC predicts an average iron-ore price of $157/ton over the next six months would allow the miner to comfortably return below its net debt target, of $12-$17 billion, by year-end.

"We caveat this with potential for a buyback to be added to the equation, which we have not built into our base case (as BHP is trading well ahead of NAV on our current long-term estimates), but the board may take a different view," RBC said.

Forex:

The U.S. dollar strengthened 0.7% against the euro and 0.2% against the yen. The WSJ Dollar Index surged 0.5%--its biggest one-day gain since mid-June, according to Dow Jones Market Data--getting a boost after the Labor Department reported the consumer-price index increased 5.4% from a year earlier, the highest 12-month rate since August 2008.

Bonds:

Treasury yields rose in a day marked by higher-than-expected inflation and soft demand in a 30-year bonds auction.

The 10-year yield climbed to 1.415% from 1.362% Monday, and the 30-year to 2.037% from 1.993%.

"We have seen some occasional hiccups in auctions in the past but overall I would say that demand has been solid," Roberto Perli, from Cornerstone Macro, told WSJ.

"I would not think that technical factors such as auction results can reverse the flattening trend of the curve," he said. "The market seems adamant that the Fed will raise rates next year and stamp out any inflation relatively quickly."

Energy:

Oil fell slightly in early Asian trade as concerns over rising Covid-19 cases in some countries continue to weigh on prices. However, crude prices could soon rise amid a likely tightening market, ANZ said.

"Oil markets are set to tighten significantly unless OPEC resolves its standoff and agrees to increase production." ANZ added that "the oil glut amassed during the depths of the pandemic has been cleared and demand is now set to rebound by strong 5.4 million barrels per day."

Metals:

Gold was steady in early Asia trade, underpinned by higher-than-expected U.S. consumer price inflation for June. The data was supportive for gold, which is regarded as a hedge against inflation, said Phillip Futures. However, worries that the Fed may raise rates sooner than expected, which could lift Treasury yields and USD, have constrained gold from rising, Phillip Futures said.

Copper fell on concerns about slowing Chinese demand for commodities. China's trade data released Tuesday showed copper imports dropped for a third straight month, suggesting the country's appetite for commodities is slowing, TD Securities said.

This week's slew of China data including 2Q GDP will probably be less well-received by market participants, as the data could reaffirm recent trends of slowing growth, TD Securities added. The three-month LME copper contract was down 0.5% at $9,362.50 a metric ton.

TODAY'S TOP HEADLINES

Senate Democrats Agree to $3.5 Trillion Healthcare and Antipoverty Plan

WASHINGTON-Democrats on the Senate Budget Committee agreed to roughly $3.5 trillion in spending for their broad healthcare and antipoverty plan, determining the scope of the party's expected efforts on education, climate change, child care and a host of other issues while it has control of Congress and the White House.

Senate Majority Leader Chuck Schumer (D., N.Y.) announced the agreement Tuesday night after an hourslong meeting among White House officials and members of the committee, which is tasked with crafting the broad contours of the bill. The $3.5 trillion price falls short of a $6 trillion package previously sought by progressives, including Sen. Bernie Sanders (I., Vt.), the chairman of the Budget Committee who endorsed the deal Tuesday night.

Fed Officials Say Punitive U.S. Legal System Is Hampering Economy

Some regional Federal Reserve officials say the U.S. criminal-justice system is so punitive, it is preventing the economy from reaching its full potential.

The leaders of the Atlanta, Boston and Minneapolis Federal Reserve Banks said Tuesday this is in large part because the legal system weighs particularly heavily on Black and Latino Americans, and is set up to ensure that legal mistakes follow offenders essentially forever, which impairs these people's ability to fully participate in the economy. The country as a whole pays a price for that in terms of a labor force that is prevented from doing all it could do, they said.

SPACs Are Helping Tougher Renewable Businesses Find the Light

Two of today's hottest investing trends are coming together: clean energy and special-purpose acquisition companies. Recent merger announcements in the space show that SPACs could be an effective growth engine for some corners of the renewable energy industry that have lagged behind as the industry overall has boomed.

Altus Power, a commercial and industrial-scale solar company, announced a merger Tuesday with a SPAC sponsored by CBRE Group, giving Altus a market capitalization of $1.58 billion. The deal follows another solar-related SPAC announcement last week for concentrated solar power company Heliogen.

New Zealand Central Bank to Reduce Stimulus by Halting Bond Purchases

WELLINGTON, New Zealand-New Zealand's central bank said it would reduce stimulus for the economy as inflation pressures rise and growth rebounds from the pandemic.

The Reserve Bank of New Zealand said Wednesday that it will halt its purchases of New Zealand government bonds-which had helped to keep wholesale interest rates low-by July 23.

U.S. Budget Deficit Narrowed to $2.2 Trillion in First Nine Months of Fiscal Year

The U.S. budget deficit narrowed to $2.2 trillion during the first nine months of the fiscal year from the same period a year earlier, with the gap between spending and revenue shrinking as the recovery from the pandemic-induced slump boosted tax collections.

Outlays for the first three quarters of the government's budget year rose 6%, to $5.3 trillion, the Treasury Department said Tuesday. Spending has been boosted by pandemic-related costs that included tax credits, expanded unemployment compensation, emergency small-business loans and stimulus checks to households.

U.S. Covid-19 Case Counts Have Doubled in Recent Weeks

New Covid-19 cases are on the rise in a number of states across the U.S., worrying health officials and epidemiologists as many Americans remain unvaccinated and the highly transmissible Delta variant spreads.

The U.S. is averaging more than 23,000 new cases a day, double the seven-day average of around 11,300 cases three weeks ago, according to a Wall Street Journal analysis of data from Johns Hopkins University. On 17 of the past 18 days, the seven-day case average was higher than the 14-day average, also suggesting cases have been rising nationally.

Yellen Says EU Delay on Digital Tax Helps Global Corporate Tax Deal

BRUSSELS-Treasury Secretary Janet Yellen thanked European officials for delaying work on a controversial tax on digital services, saying coming negotiations on a proposed global minimum corporate tax should clarify what levies might be allowed.

(MORE TO FOLLOW) Dow Jones Newswires

07-14-21 0016ET