MARKET WRAPS
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Eurozone New Commercial Vehicle Registrations, ECB Economic Bulletin; Germany Ifo Index; France Monthly Business Survey; U.K. Interest Rate Decision, MPC Meeting Minutes; EU Summit; updates from Carnival, Petrofac, Fresnillo, Wood Group, Capita, 3i, Valeo, Air France-KLM
Opening Call:
Uncertainty over the latest stimulus views from Fed officials will likely hold back European stocks on Thursday. In Asia, most benchmarks struggled for momentum, the dollar, Treasury yields and oil edged higher, while gold gave back most of Wednesday's gains.
Equities:
European stocks are set for a steady open on Thursday, as traders weigh comments from Federal Reserve officials on the outlook for stimulus after last week's more hawkish policy update from the central bank.
U.S. shares struggled for direction on Wednesday, a day after Jerome Powell reassured investors the Fed expects rising inflationary pressures to prove transitory.
Powell's tone has been echoed by other Fed officials, though both Atlanta Fed president Raphael Bostic and Fed Governor Michelle Bowman agreed that with economic growth surging to an estimated 7% this year and inflation well above the Fed's 2% target, inflation may take longer than anticipated to fade, according to a Reuters report.
"I think stocks are in a holding pattern after a very good Monday and Tuesday," Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, told MarketWatch.
While investors continue to weigh "the power of the reopening, Fed comments and the underlying earnings strength," Mortimer expects it to be a couple of choppy months for stocks over the summer and into the fall, as investors search for more clarity on the trajectory of inflation.
"We all know that inflation is going to be hot this summer. It's no secret. The question is how hot will it be next summer."
Investors have begun to examine how long higher prices might last. "For the next nine to 18 months, we expect inflation to be 'persistent, if transitory,' with higher prints lasting longer than the few months many expect, but eventually ebbing back," Michael Kelly, global head of multi-asset at PineBridge Investments, wrote Wednesday.
For equities, Kelly expects no "major correction" in the eventual "tapering phase" of the Fed's asset purchases, but "rather a more benign situation in which equities flatline or move sideways until bottlenecks eventually clear, making asset selection all the more critical."
Forex:
The dollar was stable in Asia despite Fed tapering concerns. Both Dallas Fed President Kaplan and Raphael Bostic gave hawkish-biased signals on Wednesday, prompting those worries, said DailyFX.com, with an upbeat U.S. manufacturing PMI reading reinforcing the view.
Goldman Sachs said last week's FOMC meeting "has arguably truncated the risk of a sharp dollar depreciation driven by high inflation and very low real rates, and should result in a clearer positive correlation between higher domestic inflation news and dollar appreciation." The bank said it continues to expect "broad dollar depreciation over the medium term, due to the currency's high valuation, the recovering global economy, and still very accommodative Fed policy."
The Bank of England is fully expected to leave policy unchanged when it announces a decision Thursday, though bank officials could admit that consumer price data have overshot estimates, said Jefferies.
"The Monetary Policy Committee could well acknowledge the fact that the most recent inflation prints had surpassed expectations, something that will be taken into account when the new economic forecasts are published in August."
Official U.K. data indicate the economy is on track to record strong growth over the summer months, despite the recently announced delay in the lifting of social restriction measures, added Jefferies.
Bonds:
Yields for U.S. government debt rose slightly in Asia, extending Wednesday's gains, after the Fed's Bostic joined Bullard in backing a late-2022 rate hike plan.
Mr. Bostic, who was speaking on a call with reporters, said he saw the economy meeting the Fed's criteria for "substantial progress" in three or four months, at which time the central bank could consider tapering its monthly asset purchases and nudging interest rates higher. Bostic is a voting member of the FOMC.
Energy:
Oil futures were little changed in Asia after they rose Wednesday on data showing U.S. crude supplies fell for a fifth straight week.
IG said the next OPEC+ meeting set for July 1 is under the spotlight and the cartel may gear up output in the months to come, thanks to the rollout of Covid-19 vaccines globally boosting fuel demand as travel normalizes. "They need to calibrate the pace and magnitude of the hikes however, to prevent hurting prices."
The WSJ has reported sources as saying that OPEC and its allies are considering boosting collective output by about 500,000 barrels a day.
Metals:
Gold was lower, with prices giving back most of Wednesday's gains as the dollar nudged higher. OCBC said the precious metal may be further pressured if upcoming U.S. durable goods orders data is stronger than expected.
Base metals fell back, with the three-month LME copper contract down 1.1% to $9,382 a ton, and the aluminum contract 0.9% lower at $2,418.50.
Spot trade volumes for copper appear to have weakened from earlier in the week, said Huatai Futures, adding the traditional peak season in downstream manufacturing sectors is nearing its end. But the medium- to long-term demand for copper will be driven by new-energy industries and infrastructure investments in China, it added.
Goldman Sachs said investors should view aluminum as being in the early stages of a multiyear bull market. Prices are likely to be fueled by material cost inflation and a drop in supply growth to its lowest levels in nearly four decades.
The bank has predicted a market deficit of 3 million tons by the end of 2023 ballooning as high as 9 million tons by mid-decade. "Companies that can reduce their emission intensity and produce greener aluminum may attract a valuation premium versus peers."
Goldman Sachs also said the carbon-free aluminum smelting technology being developed by Rio Tinto and Alcoa could be worth billions to the companies as the race to "green" aluminum picks up pace.
Several aluminum producers -- including Norsk Hydro and Rusal -- have already reported getting small green premia on some of their aluminum sales, in the order of $5-$20/ton. "The realization of a green premia would make the technology," which Rio Tinto and Alcoa hope to commercialize by 2024, "strongly NPV positive," said Goldman Sachs.
TODAY'S TOP HEADLINES
Yellen Says U.S. Could Breach Debt Limit Deadline in August if Congress Doesn't Act
WASHINGTON-The U.S. could run out of room to keep paying the government's bills some time during Congress's August recess unless lawmakers raise or suspend the federal borrowing limit before then, Treasury Secretary Janet Yellen said Wednesday.
Congress in 2019 suspended the borrowing limit, or debt ceiling, through July 31, 2021. After that, the Treasury Department won't be able to raise additional cash through the sale of government securities and would need to deploy emergency measures to keep paying the government's obligations, as it has in the past.
Fed's Bostic Says Bond Buying Drawdown Near, Sees Rate Rise in Late 2022
Federal Reserve Bank of Atlanta President Raphael Bostic said Wednesday he has moved forward his expectations for a central bank rate rise to next year and that the time is coming soon for the Fed to pare its bond buying stimulus efforts.
"Given the upside surprises and recent data points, I've pulled forward my projection for our first move to late 2022," Mr. Bostic said in a call with reporters. Mr. Bostic said he also expects two additional increases in the federal-funds rate in 2023. The Fed official had recently said he expected the first increase in 2023.
Google, Facebook Pressure Falls Short as Major Antitrust Measures Advance in House Committee
WASHINGTON-A House committee approved far-reaching legislation to curb the market dominance of tech giants, including Alphabet Inc.'s Google and Facebook Inc., but much of the effort faced intensive lobbying by affected firms that slowed the committee's work and foreshadowed a pitched battle in the Senate.
In a package of six bills, the most significant measure to pass by late Wednesday requires that the largest internet platforms make it easier for users to transport their data to other platforms and even communicate with users on other platforms. The bill-known as the Augmenting Compatibility and Competition by Enabling Service Switching, or Access, Act-would give the Federal Trade Commission extensive new powers to set individualized standards for the tech giants. It passed, 25-19.
Biden to Deter Forced Labor With Ban on China's Solar Panel Materials
WASHINGTON-The Biden administration plans to broaden its campaign against the use of forced labor in China's Xinjiang region by imposing penalties on some companies that produce raw materials used to make solar panels, according to people familiar with the plans.
Under the plan, to be announced Thursday, U.S. Customs and Border Protection would bar imports of metallurgical-grade silicon mined by Hoshine Silicon Industry (Shanshan) Co., as well as products made from it, unless the company can prove the material isn't produced with forced labor, these people said.
Infrastructure Negotiators Agree to Framework for Package
WASHINGTON-Members of a bipartisan group negotiating a roughly $1 trillion infrastructure proposal said they had crafted a framework for an agreement, and lawmakers plan to meet with President Biden on Thursday to try to complete a deal.
The Democrats and Republicans emerged from a meeting with top White House officials Wednesday saying work would continue on some unresolved details.
(MORE TO FOLLOW) Dow Jones Newswires
06-24-21 0030ET
