MARKET WRAPS
Stocks:
European stocks rose modestly on Friday, as investors kept watch on the fast spreading delta variant of the coronavirus that causes Covid-19, and absorbed a fresh batch of earnings.
Investors remain concerned about the highly contagious delta variant, which has rapidly spread worldwide. President Joe Biden will join Pacific Rim leaders, including China's Xi Jinping and Russia's Vladimir Putin in a virtual meeting to develop strategies to help economies rebound from the resurgent pandemic.
And in Germany, Chancellor Angela Merkel has pledged rapid help for disastrous flooding that has killed more than 90 and left hundreds missing in the western part of the country, as persistent rains have left rivers and reservoirs overflowing. The floods have also affected neighboring countries such as Belgium and Luxembourg.
Fresh data showed European Union car sales rose in June, but the pace slowed, according to data from the European Automobile Manufacturers' Association. New-car registrations rose 10% year-over-year, but versus a gain of 53% in May.
Stocks to Watch:
Shares of Puma fell 2%, after the German sporting-goods company raised full-year revenue and earnings guidance, after sales almost doubled in the second quarter.
From the luxury-goods sector, shares of Burberry fell over 2%. The U.K. luxury-goods group reported a 90% rise in comparative store sales and a 26% rise in full-price comparable sales for the 13 weeks ended June 26, both compared with the year-ago period, driven by a strong rebound from the pandemic.
"A big obstacle waiting to trip up the company on this catwalk of recovery is the departure of CEO Marco Gobbetti. He has been seen as the turnaround czar for Burberry and investors are questioning the company's ability to keep driving through the strategic turnaround without him in the front row," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, in a note to clients. Gobbetti is due to exit at the end of the year.
Richemont reported sales jumped in the first quarter of the fiscal year, driven by jewelry and watch sales and a strong Americas performance. The Swiss company also said it would implement a change to the group management structure. Those shares rose 0.2%.
Shares of Ericsson dropped 9%. The telecommunications-equipment company announced an $8.3 billion multiyear 5G deal with Verizon Communications and posted a forecast-beating second-quarter net profit that beat expectations, but reported weaker sales in China.
Ericsson previously warned that Sweden's ban on certain Chinese gear could result in some retaliation, and said it is now "prudent to forecast a materially lower market share in mainland China for networks and digital services."
Rio Tinto said it shipped 12% less iron ore from its Australian mining hub in the second quarter of 2021 versus a year earlier, and that it expects annual exports to be at the low end of an earlier estimate, following above-average rainfall, operational shutdowns and COVID-19-fueled labor shortages. Shares of the world's second-biggest miner fell 1.7%.
U.S. Markets:
Stock futures edged up ahead of retail sales data that are expected to provide fresh insight into the strength of the American consumer.
Retail sales for June are set to be released at 1230 GMT. Economists expect a drop for the second straight month, as consumers spent more on services and less on big-ticket items like cars. A gauge of consumer sentiment by the University of Michigan is scheduled for 1400 GMT.
Shares traded choppily this week as investors digested a higher-than-expected inflation reading Tuesday. This was followed by Jerome Powell seeking to reassure markets that the central bank sees the rise in prices as uncomfortable but transitory and isn't in a hurry to adjust its supportive policies.
"The Fed is still being pretty patient, Powell has made it clear that they will remain pretty accommodative for some time," said Salman Baig, a multiasset investment manager at Unigestion. "That's a relatively good environment for risk taking-good growth, bond yields being relatively stable, investors will be OK with taking on more risk."
Shares of Intel rose 0.6% in after hours trading when The Wall Street Journal reported that the semiconductor giant was exploring a deal to acquire chip maker GlobalFoundries for around $30 billion.
Forex:
The dollar and the euro were steady in early European trading and UniCredit expects little prospect of this changing, leaving them stuck in a tight range.
The dollar has retreated from higher levels earlier this week after Jerome Powell reiterated in testimony that high inflation would only be temporary and suggested monetary tightening wasn't imminent.
However, these falls haven't resulted in a "strong appreciation of the other [forex] majors," said UniCredit. EUR/USD is "struggling trendless at around 1.18," with investors await next week's European Central Bank decision for direction, it said.
Bonds:
Societe Generale has recommended investors stay overweight on eurozone noncore government bonds on the view that the ECB's ending of the Pandemic Emergency Purchase Programme will be carried out in a cautious manner, mitigating risks.
"The PEPP will have to end, but it will likely transition into an increased and more flexible Asset Purchase Programme," said SocGen. The bank's strategists believe that any widening of government bond yield spreads due to the Delta coronavirus variant should be considered as an opportunity.
Societe Generale also said the 10-year Treasury yield seems to be settling into a new trading range of 1.25%-1.50% but it sees the risks skewed toward higher yields on the back of improving economic fundamentals.
With the sharp rise in inflation and tangible progress on the Federal Reserve's inflation target, "we still need to see a steady pace of job creation before the Fed begins to feel comfortable about tapering asset purchases," said SocGen.
The bank's rates strategists consider the November or December announcement with tapering starting early next year as the most likely outcome.
Wells Fargo Asset Management said higher interest rates often aren't good news for sovereign bond yields, but the expected slow pace of tightening and the global backdrop of faster growth suggest that emerging-market bonds won't be completely without support.
Reflecting this view, WFAM has started to "gently" increase duration in emerging markets and is targeting a more neutral position, said Lauren van Biljon, portfolio manager at WFAM.
The asset manager expects the next few months will be important when it comes to forecasting inflationary pressures into year-end. If core inflation can remain controlled, it could spur a flattening of emerging-market yield curves, van Biljon said. WFAM anticipates signs of headline inflation peaking.
HSBC said an early end to the Bank of England's bond-buying program could signal earlier rate rises and the unwinding of the central bank's balance sheet.
The end of quantitative easing might signal "a greater likelihood of interest rate rises in the coming months, given inflation concerns and might suggest a desire to keep the size of the balance sheet in check," said economists at HSBC. They added that this might point to the BOE reducing the size of the balance sheet sooner rather than later or even before rates start rising.
Greece's future borrowing costs could, in large part, depend on the eligibility of Greek government bonds for European Central Bank purchases after the Pandemic Emergency Purchase Programme ends in March and strong support from the Next Generation EU program, said Citi's rates strategists.
"We think any further [Greek government bond] outperformance within the periphery and near-term rating upgrades are likely to be contingent on the ECB's stance, and the rating agency is likely to wait for clarity on this front."
Fitch is scheduled to review Greece's 'BB' rating and stable outlook later Friday.
Commodities:
Oil prices edged down for a third day, with WTI futures around 0.2% lower and on course to end the week 4% lower. Even so, investors remain generally optimistic about prices, with both the IEA and OPEC forecasting that demand will outstrip supply in the coming 18 months and with UBS expecting Brent at $80 this summer.
Copper prices rose 0.2% at the end of a range-bound week as investors weighed demand and inflation risks.
The metal is on course to end the week down 0.6% as concerns about slowing demand have helped weigh, said Malcolm Freeman, CEO of brokerage Kingdom Futures.
"Demand is expected to continue to seasonally fall and the warnings issued by Beijing over price speculation are adhered to," he said. "In the USA and elsewhere the spectre of rising inflation and slowdown in growth is starting to put pressure on economic activity."
China's efforts to lower air pollution and energy consumption by aluminum smelters has "the potential to drive significant positive change in the global aluminum fundamentals," Alcoa Chief Executive Roy Harvey told analysts during a conference call.
Harvey said he's encouraged that China's aggressive reduction strategies will lower aluminum production in the coming years by idling older, inefficient production capacity and curbing new capacity growth. China's aluminum industry has been a major contributor to the global oversupply in recent years.
EMEA HEADLINES
Ericsson Cautions on Falling Sales in China
Ericsson AB on Friday announced an $8.3 billion multiyear 5G deal from Verizon Communications Inc. as it posted a second-quarter net profit that beat expectations, but cautioned that delayed 5G deployments in mainland China weighed on sales.
The telecommunications-equipment company reported second-quarter net profit attributable to shareholders of 3.68 billion kronor ($424.6 million) compared with SEK2.45 billion for the year-earlier period.
Rio Tinto's Mines Hit By Covid-19 Restrictions
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07-16-21 0619ET
