MARKET WRAPS

Watch For:

Germany Foreign Trade; OECD Harmonised Unemployment Rate; ECB accounts of its last monetary policy discussions; updates from OMV, Fuller Smith & Turner, SAS, Persimmon, Rolls-Royce Holdings, Entain, and Meggitt.

Opening Call:

Stock futures pointing lower, dollar strengthens, metals fall.

Equities:

European stocks are set to open lower Thursday as investors continue to digest the U.S. Federal Reserve's June meeting minutes and look ahead to the upcoming European Central Bank strategy review.

The EBC heavily anticipated strategy review is on the agenda today.

"The ECB will unveil its new framework that is expected to show a slight change on how it defines price stability and a more aggressive approach to supporting the economy during the next crisis. The ECB will tweak its inflation target to 2% from below, but close to 2%," said Edward Moya at OANDA.

The framework should also highlight guidelines to support employment and climate change initiatives.

Investors have propelled the major stock indexes into record territory as the economy has recovered from the pandemic-induced recession, jumping from one asset class to another-tech stocks, growth stocks, value stocks, bonds, even bitcoin-in search of the best returns.

While investors have been encouraged by the Federal Reserve, which has said it doesn't plan to pull back on supportive policies in the near term, the central bank's monetary policy has sparked a bout of inflation that is driving both supply and labor shortages, and could curtail the economy's growth. That is complicating the picture for investors.

"While we doubt that the reflation and rotation trades are entirely dead, they may have now largely run their course," said Capital Economics' Oliver Allen.

The market is now being driven by growth concerns, said Peter Boockvar, the chief investment officer at Bleakley Advisory Group. There are signs that growth is plateauing, he said, but inflation isn't. That resembles the so-called stagflation of the 1970s.

That dynamic, he said, is the cause of the drop in bond yields, which is in turn affecting stocks. "It's the inflation that's causing the slowdown," said Mr. Boockvar.

"It is really the tech space that's been driving the market," said Esty Dwek, head of global market strategy at Natixis Investment Solutions. "Over the next few weeks and months, hopefully we'll see that U.S. growth is holding up well, that will continue to support markets."

The Federal Reserve's minutes from its June meeting, released Wednesday afternoon, showed policy makers debating how and when to start pulling back their support for the economy. The minutes reflected the growing division about the timing of rate increases and tapering back asset purchases.

A June press conference after the Fed meeting led to a market dip last month, but investors seem much less worried about the central bank now.

"They have shown us that they are not asleep at the wheel and they are keeping an eye on inflation, but they still expect it to be transitory," Ms. Dwek said.

Forex:

The ECB will slightly change its inflation target of "below, but close to 2%" following its strategy review this autumn but that won't impact the euro, Nomura said.

"Unless the ECB adopts average inflation target or one of the other unlikely policies (such as raising the inflation rate target above 2%), we don't expect the review to materially change our EUR view, which is for 1.25 by year-end," Nomura analysts said.

The ECB will probably change its inflation target to 2% with tolerance bands, which still means more policy support should be required given inflation is expected to undershoot 2% in the medium term, he said.

The U.S. dollar strengthens 0.3% against the euro and firms slightly against the yen. The WSJ Dollar Index added 0.1%. Cambridge Global Payments' Karl Schamotta said reaction to the Fed minutes have been muted.

"Treasuries and the dollar are trading sideways--suggesting that skepticism surrounding the Fed's commitment to its 'average inflation targeting framework' remains largely intact. Barring any surprises, market-implied expectations for a tapering announcement are now aligned with the Fed's September 21-22 meeting--when clearer jobs and inflation data should be available."

Bonds:

Fed minutes "were not as hawkish as we suspected," Capital Economics said. "There seems to be only limited support for beginning to taper the monthly asset purchases anytime soon." The minutes to the June meeting barely moved Treasury yields, which recorded their third consecutive decline, sending the 10-year down to 1.321% from 1.369% Tuesday.

Analysts expected yields to bounce back if the minutes were more hawkish. "Phrases like 'patient', 'in coming meetings' and 'begin to discuss' suggest to us that, although some participants thought the taper could be moved up, on balance it still appears that it won't begin until the start of next year," Capital Economics said.

Energy:

Oil declinesd in Asian trading as uncertainty about OPEC+ oil supply plans from August continues to weigh on energy markets, CBA said.

Although OPEC+ is likely to eventually add more supply this year, the increase could be from September rather than August if an OPEC+ meeting date is not decided soon, the bank said

Investors are also likely to focus on U.S. oil output, which has remained below pre-pandemic highs, it said.

Metals:

Gold inched lower in early Asia trade, after rising overnight on a decline in the 10-year U.S. Treasury yield. The precious metal is likely to be supported in the near term on a steady U.S. dollar, IG said.

It pegs support at $1800 and resistance at $1820.

Copper fell in early Asian trade, reversing overnight gains, with prices likely pressured by a stronger USD and weaker spot demand in China after recent restocking, Soochow Futures said.

ANZ said there are signs, nonetheless, that demand remains strong, pointing out that settlement prices at the auction of metals from China's national stockpiles were just below current spot prices, even though large discounts had been expected.

News that Beijing could cut its reserve requirement ratio for banks is likely to buoy sentiment, the bank added. Three-month LME copper contract fell 0.6% to $9401.00 a ton.

TODAY'S TOP HEADLINES

Fed's Bostic Says Time to Taper Is Growing Nearer, but Won't Put Date on It

Federal Reserve Bank of Atlanta President Raphael Bostic said that the time is getting closer for the U.S. central bank to pull back on its monthly $120 billion bond-buying stimulus program, but he wouldn't say when that might happen.

"We're getting close to a time when tapering will be appropriate," Mr. Bostic said Wednesday in a virtual appearance before a gathering held by the National Association of Black Journalists. "If we do this right, in the right time, this should not affect consumers in any way," he said.

Fed Officials See Earlier End for Bond Buying, Emphasize Patience

Federal Reserve officials suggested that they might need to pull back their support for the economy sooner than they had anticipated because of stronger-than-expected growth this year.

Fed officials discussing the matter at their June 15-16 policy meeting weren't ready to reduce their $120 billion in monthly purchases of Treasury and mortgage securities, according to minutes of the gathering released Wednesday. But an unspecified number thought that time could be approaching.

U.S. Treasury Yields Extend Steep Decline

Yields on U.S. government bonds reached fresh multimonth lows on Wednesday, reflecting investors' anxiety about the economic outlook and new concerns about the highly contagious Delta variant of Covid-19.

Yields, which fall when bond prices rise, climbed sharply in the first quarter of 2021 but have been dragged down in recent months by investors reassessing their more optimistic economic forecasts amid signs that Congress and the Federal Reserve might not provide quite as much stimulus as previously anticipated.

Delta Covid-19 Variant Is Dominant U.S. Strain, CDC Data Show

The highly transmissible Delta variant has become the dominant strain of the Covid-19 virus circulating in the U.S., according to federal data. It is spreading rapidly as communities loosen pandemic restrictions and officials struggle to reach unvaccinated people.

The Delta variant, also known as B.1.617.2, made up 51.7% of Covid-19 infections in the two weeks ended July 3, according to genetic sequences from positive Covid-19 tests submitted to the U.S. Centers for Disease Control and Prevention.

RBA Governor Says International Border Closure Could Fuel Surge in Wages

Australia could face a surge in wages growth and inflation if the closure of the country's international borders to foreign workers continues for some time, Reserve Bank of Australia Gov. Philip Lowe said Thursday.

In a speech to economists, Mr. Lowe said the most significant challenge to labor supply in the country was the closed border, which has normally been a major source of skilled workers for the economy over many decades.

Robinhood's Debut Is Clouded by SEC Scrutiny of Payment for Order Flow

Robinhood Markets Inc. is on a collision course with regulators over a controversial practice that generates most of its revenue, as the online brokerage gears up for a highly anticipated initial public offering.

In its IPO filing, released Thursday, Robinhood disclosed that 81% of its first-quarter revenue came from sending its customers' stock, options and cryptocurrency orders to high-speed trading firms-a practice known as payment for order flow.

U.A.E. Pushes to Produce More Crude, Creating OPEC Deadlock

Behind the standoff inside OPEC over whether to boost oil production is a key cartel member with a new strategy: sell as much crude as possible before demand dries up.

(MORE TO FOLLOW) Dow Jones Newswires

07-08-21 0018ET