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EMEA Morning Briefing: Stocks to Stem Losses for Now

07/20/2021 | 12:29am EDT

MARKET WRAPS

Watch For:

Eurozone Balance of Payments, ECB Bank Lending Survey; Germany PPI; Italy Balance of Payments; updates from UBS, Alstom, Remy Cointreau, Salvatore Ferragamo, Ubisoft, Electrolux, Volvo, SKF, Telenor, easyJet, Anglo American, BHP, Anglo American Platinum, Intermediate Capital, Vodacom, Telenor

Opening Call:

Europe is in line for a calmer opening session on Tuesday, although escalating worries about Covid's delta variant will likely cap any gains for stocks. In Asia, most equity benchmarks were lower, but losses appeared contained, while the dollar and bond yields crept higher, as did most commodities.

Equities:

European stocks should open on a steadier footing on Tuesday, although anxiety over the spread of the Delta coronavirus variant and its potential impact on the global economy will continue to dominate the mood.

On Wall Street, the Dow fell more than 700 points on Monday, its worst session since October, with the S&P and Nasdaq also sliding as investors punished travel shares. The moves were reminiscent of trading patterns that prevailed in the early days of the pandemic. Investors sold shares of companies directly affected by restrictions on movement and business, while buying government bonds and stocks that stood to benefit from renewed lockdowns.

"The emergence of this more highly transmissible Delta variant...has brought into the question the sustainability of this reopening and the recovery," said Candice Bangsund, a portfolio manager at Fiera Capital. Still, she said the variant would delay rather than derail a big pickup in economic activity and called Monday's selloff a chance to scoop up shares of energy producers, industrial firms and financial companies.

Stocks to Watch: BHP Group said fourth-quarter iron ore production was slightly weaker year-over-year, while output of copper also slipped and petroleum volumes increased. The miner reported output of 65.2 million metric tons of iron ore in the three months through June, down 2% on year but up 9% on the quarter immediately prior. That took fiscal-year production to 253.5 million tons.

BHP said it expects fiscal 2022 output to be around similar levels, estimating volumes of between 249 million and 259 million tons for the year through June 2022. Fourth-quarter copper production fell by 3% year-over-year to 403,000 tons, taking fiscal-year output to 1.636 million tons. That was also in line with guidance, upgraded in April, to produce between 1.535 million-1.660 million tons.

Forex:

The dollar was little changed in Asia trading, thinned by holidays in some countries in the region, but could move higher again given continued worries over the Delta variant of Covid-19.

What is likely worrying investors now is the surge in infections occurring in developed markets with high vaccination levels, said NAB. This underscores the view that while fully vaccinated people are being protected from severe cases and hospitalization, they can still transmit the virus, NAB added.

UBS Global Wealth Management has maintained its year-end target of 0.84 for EUR/GBP and expects further EUR weakness next year to 0.83, due to diverging central bank policy.

"A stronger-than-expected economy has put the Bank of England in a hawkish mood, meanwhile the European Central Bank has turned even more dovish," said UBS, which expects the ECB to keep stimulus in place "much longer" than the BOE.

UBS expects EUR/GBP to remain in a 0.83-0.87 range near term, but with synchronized global growth later it could test the 0.80 level. Meanwhile, the 0.90 level is a "hard upside resistance."

MUFG said falls in the euro "could intensify" ahead of Thursday's ECB meeting as there will be pressure on policymakers to "back up their new policy framework with policy action to boost market credibility," said Lee Hardman, currency analyst.

Potential options include committing to faster bond purchases under the Pandemic Emergency Purchase Programme beyond 3Q and/or reassuring that PEPP will be followed by a "beefed-up" version of the Asset Purchase Programme, he said.

Decisive action could trigger a euro selloff as other major central banks are moving closer to raising rates. If the ECB holds back for now, this "would provide some relief for the euro," he said.

Bonds:

U.S. government bond yields were slightly firmer in Asia after they sunk on Monday to February lows as growth fears mounted.

Some analysts said the decline in Treasury yields may be amplified by investors closing out bets that yields would rise. "The market last week was still relatively short Treasurys," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. "Yields had not moved enough to wipe out the whole short position."

Energy:

Oil futures steadied in Asia after they finished Monday's session around 7% lower, with U.S. prices posting their biggest daily percentage loss since September.

Concerns over the spread of the delta variant continued to cloud the demand outlook after OPEC+ reached a deal to boost oil production.

"The rise in the delta variant has not only hindered OPEC's ability to increase production without pulling down prices, but also has much broader implications for the macro trade that is not supportive of oil prices," Troy Vincent, market analyst at DTN, told MarketWatch.

He expects a strengthening dollar, weakening Chinese and global economic growth, rising production from OPEC+ and resilient non-OPEC production to "keep a lid on crude prices in the second half of the year."

However, shipbroker Simpson Spence Young said the production deal "should provide some stability to the market over the coming months," expecting it will ultimately lend support to prices.

Metals:

Gold prices were higher in Asia, recovering most of Monday's modest losses. Guotai Junan Futures said it doesn't expect significant downward pressure on the precious metal in the near term, in part because of some turbulence in the dollar.

Chinese iron-ore futures made gains, although they're seen as limited by increasing production curbs at steel mills, said Huatai Futures. Lower steel output may gradually hurt demand for the raw material but it is unlikely to deteriorate rapidly in the near term, it said.

ANZ noted Chinese state media reports that the China Iron and Steel Association has completed the first draft of its roadmap to carbon neutrality. The bank said any reduction in steel output will hurt iron-ore demand.

TODAY'S TOP HEADLINES

Lawmakers Spar Over Infrastructure Package as Deadline Nears

WASHINGTON-Lawmakers sparred Monday over Senate Democrats' decision to impose a midweek deadline on a bipartisan group still scrambling to reach an agreement on a roughly $1 trillion infrastructure bill.

Senate Majority Leader Chuck Schumer (D., N.Y.) took the first step Monday to set up a vote Wednesday opening debate on the infrastructure bill. But the bipartisan group of 22 senators hasn't yet struck a deal on how to fully pay for the cost of the legislation, which would spend roughly $600 billion above projected federal spending on improvements to roads, bridges and broadband access, among others.

U.S. Coronavirus Recession Lasted Two Months, Ended in April 2020, Official Arbiter Says

The U.S. officially climbed out of a recession in April 2020, concluding a pandemic-driven economic contraction that lasted two months, making it the shortest on record.

The announcement Monday from the National Bureau of Economic Research also marks April as the official start of the economic recovery from the initial shock of the coronavirus pandemic last spring, which triggered widespread business and school closures, a steep drop in demand for services and record job losses.

BHP's 4th-Quarter Iron-Ore Output Fell 2% on Year

BHP Group Ltd. said fourth-quarter iron ore production was slightly weaker year-over-year, while output of copper also slipped and petroleum volumes increased.

The world's biggest mining company by market value reported output of 65.2 million metric tons of iron ore in the three months through June, down 2% on year but up 9% on the quarter immediately prior. That took fiscal-year production to 253.5 million tons. BHP had earlier estimated volumes in the upper-half of a 245 million-255 million ton guidance range.

Volkswagen Kills Off Passat in U.S. to Focus on SUVs and Electric Vehicles

Volkswagen AG is phasing out sales of the Passat sedan in the U.S., the latest well-known nameplate to exit U.S. showrooms as auto makers embrace sport-utility vehicles.

The German auto maker said Monday that the 2022 model year will be the final run for the midsize sedan, which has been sold in the U.S. under the Passat name since 1990. VW said it is focused on selling SUVs and the start of U.S. production next year of its new electric model, the ID.4.

Germany Was Warned About Floods, but Few Communities Took Measures

The first precise warning that Germany was about to be hit by a violent storm likely to unleash a potentially deadly flood reached the country's Meteorological Service in the early hours of July 12, nearly three days before disaster struck.

It was Monday morning, and this government agency's supercomputer, a machine the size of a hockey rink, had just generated a model forecast predicting with over 90% certainty and a precision down to 2 square kilometers that a string of West German communities would likely be befallen by severe flooding by late Wednesday.

Biden Seeks to Clarify Comments on Facebook, Vaccine Misinformation

WASHINGTON-President Biden on Monday sought to clarify his criticism of Facebook Inc., asserting that the company itself wasn't killing people by not doing enough to clamp down on misinformation about Covid-19 vaccines.

(MORE TO FOLLOW) Dow Jones Newswires

07-20-21 0028ET

Stocks mentioned in the article
ChangeLast1st jan.
AB SKF -0.66% 210.6 Delayed Quote.-0.94%
AB VOLVO -0.93% 193.38 Delayed Quote.0.58%
ALSTOM 1.63% 32.45 Real-time Quote.-31.50%
ANGLO AMERICAN PLATINUM LIMITED -0.70% 1366.24 End-of-day quote.-5.33%
ANGLO AMERICAN PLC -0.94% 2575.5 Delayed Quote.7.20%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) -0.24% 0.5308 Delayed Quote.-5.54%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.33% 0.6201 Delayed Quote.-1.76%
BHP GROUP -0.72% 38.38 End-of-day quote.-9.55%
BRITISH POUND / EURO (GBP/EUR) -0.11% 1.16794 Delayed Quote.4.12%
BRITISH POUND / US DOLLAR (GBP/USD) -0.13% 1.37112 Delayed Quote.-0.42%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) -0.13% 0.575142 Delayed Quote.-0.18%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.23% 0.67216 Delayed Quote.3.98%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.25% 0.78813 Delayed Quote.-0.40%
DJ INDUSTRIAL 1.48% 34764.82 Delayed Quote.10.83%
EASYJET PLC -0.28% 662.296 Delayed Quote.-6.44%
ELECTROLUX AB -0.97% 203.4 Delayed Quote.7.60%
EURO / BRITISH POUND (EUR/GBP) 0.10% 0.85596 Delayed Quote.-3.93%
EURO / US DOLLAR (EUR/USD) -0.03% 1.17371 Delayed Quote.-4.31%
FACEBOOK INC 0.80% 345.96 Delayed Quote.26.65%
FIERA CAPITAL CORPORATION 0.38% 10.57 Delayed Quote.-1.03%
GOLD 0.47% 1756.8 Delayed Quote.-6.89%
GUOTAI JUNAN SECURITIES CO., LTD. 2.51% 18.8 End-of-day quote.7.24%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 0.19% 0.009895 Delayed Quote.-0.78%
INDIAN RUPEE / EURO (INR/EUR) 0.16% 0.011556 Delayed Quote.3.32%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.14% 0.013564 Delayed Quote.-1.13%
INTERMEDIATE CAPITAL GROUP PLC -2.04% 2124 Delayed Quote.25.14%
LONDON BRENT OIL 0.08% 77.44 Delayed Quote.44.45%
NASDAQ COMP. 1.04% 15052.243848 Real-time Quote.14.42%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.28% 0.70449 Delayed Quote.-2.64%
S&P 500 1.21% 4448.98 Delayed Quote.15.92%
SALVATORE FERRAGAMO S.P.A. -0.55% 18.07 Delayed Quote.14.44%
TELENOR ASA -0.47% 147.75 Real-time Quote.1.75%
US DOLLAR / BRITISH POUND (USD/GBP) 0.13% 0.72949 Delayed Quote.0.42%
US DOLLAR / EURO (USD/EUR) 0.03% 0.851999 Delayed Quote.4.51%
VODACOM GROUP LIMITED 1.32% 147.93 End-of-day quote.18.92%
VOLKSWAGEN AG -1.14% 187.5 Delayed Quote.24.20%
WTI -0.05% 73.39 Delayed Quote.46.78%
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