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EUROPEAN MIDDAY BRIEFING: Stocks Tread Water as More Fed Clues Eyed

08/10/2021 | 06:13am EST

MARKET WRAPS

Stocks:

European stocks were little changed Tuesday, with the highly contagious delta variant of coronavirus and its potential impact on global growth remaining in focus. Even a rebound for crude-oil and metals prices from three-week lows on Monday wasn't proving much inspiration.

Investors seemed to be sitting tight, awaiting further clues from Federal Reserve officials about plans to ease stimulus measures. Separate speeches from the Fed's Loretta Mester and Charles Evans later Tuesday will be closely parsed by investors for clues on when the officials expect the central bank to begin tapering its economic support.

"We are going to see the Fed continuing to nudge us and remind us that they are eventually going to taper," said Hani Redha, a portfolio manager at PineBridge Investments. "There has been enough telegraphing about tapering that it is unlikely to cause a tantrum so I wouldn't hold my breath or hide under my desk when that announcement is made."

U.S. Markets:

U.S. stock futures pointed to another breather for Wall Street on Tuesday, as investors kept watch on the spread of Covid-19 and for fresh catalysts to keep pushing equities higher.

Investors are waiting on the NFIB small business optimism index and preliminary second-quarter productivity and unit labor costs.

"Remember the big data point this week is tomorrow's U.S. CPI number. However, the jawboning we are seeing from Fed speakers already this week indicates that [Fed Chair] Jay Powell is ready to make the leap," said Neil Wilson, chief market analyst at Markets.com, in a note to clients.

Shares of AMC Entertainment climbed 10% in premarket trading after the movie-theater chain reported a narrower quarterly loss late Monday, and a deal with AT&T's Warner Bros. over showing its movies in theaters before streaming.

Forex:

The dollar was higher again after the Fed's Raphael Bostic and Eric Rosengren suggested tapering of asset purchases could happen in the fall after strong U.S. jobs data last week.

"The remarks...appeared to favour a fast approach, with tapering that may start as early as September if jobs data continues to signal that the economy is heating up," said ING. "The prospect of the Fed starting to unwind stimulus in the [fall] should continue to offer a supportive underlying narrative for the dollar for now."

Westpac thinks the USD Index should continue to find support in the 91.50-92.00 area and as Fed taper talk rises to a crescendo in the third quarter, it could reach new highs beyond 93.50.

JPMorgan said the upbeat jobs report combined with last week's strong ISM "is helping to intensify a setup for a potentially pivotal September for the dollar and FX markets."

JPM said: "Risks of an early taper has risen. The inevitably of the taper itself is less consequential given universal expectations that it will happen. But its delivery, especially if it comes early, will trigger a closer look and a repricing of the path of the Fed funds, which has diverged from Fed signaling and flattened unsustainability in recent weeks."

ING said the dollar's gains are likely to remain limited in the near term even if the Fed fuels expectations of tightening policy at the Jackson Hole symposium Aug. 26-28.

The Fed will probably discuss tapering bond purchases at Jackson Hole, which should firm up expectations that the central bank will start tightening in early 2023 or even late 2022, said ING analysts. "Our preference is that the dollar enjoys a more powerful rally six months before the first tightening. That's the second quarter of 2022."

Before then, an orderly tapering cycle and a traditionally weak period for the dollar present a "more neutral environment" for the currency into year-end, the analysts said.

The Swiss franc will be the biggest laggard among G10 currencies if the recent pickup in global bond yields continues, said Bank of America. "If the past week's stabilization in yields is the precursor to further gains, we believe CHF is the most vulnerable currency in G10 to a yield reset," said BofA analysts.

"While lower CHF vs USD and high-beta foreign exchange remains our preferred expression, EUR/CHF is also showing signs of decoupling from some of its traditional anchors such as European bank stocks' performance and the signals from the EUR/CHF options market."

However, gains in EUR/CHF will likely be capped at 1.10, the analysts said.

Bonds:

German government bonds edged lower, reversing the earlier trading pattern, as the risk of early U.S. monetary tightening offset concerns about the spread of the Delta coronavirus variant.

Bunds are at risk of "adverse U.S. spill-overs" after the comments from the Fed's Bostic and Rosengren, said Commerzbank analysts. "Adverse U.S. spill-overs remain the overriding theme for euro bond markets as Bunds continue to follow the direction of U.S. Treasuries."

Commodities:

Crude oil futures clawed back most of Monday's heavy losses that came thanks to Delta variant demand fears in China, a stronger dollar, and expectations of rising OPEC+ supply.

OPEC+ has been known to react to sharp price drops, and "while it is unlikely that the recent market weakness will see OPEC+ react, further weakness could see the group become increasingly concerned," said ING's Warren Patterson. With the next OPEC+ meeting on Sep. 1 "if we get to this meeting and there has been further price weakness, there is the real possibility that we see the group go back on their easing plan."

Base metal prices and gold recovered some of the previous session's hefty losses, with investors awaiting further comments from Fed officials for clues on when the central bank will ease its stimulus measures and Wednesday's CPI data.

Commodities have slumped at the start of the week as concerns about the Delta variant and fresh restrictions in China threaten global growth.

EMEA HEADLINES

France, Italy Impose Strict Covid-19 Vaccine Mandate, a Preview for U.S. Cities

Julien Zerbos turned away some would-be diners on Monday from the brasserie on Paris' Champs-Élysées where he works because they didn't have the European Union's new digital health certificate.

France began requiring the passes, which certify that somebody has been vaccinated against Covid-19, on Monday for people seeking to dine at a restaurant, whether indoors or outdoors. The pass is now also necessary to take domestic flights and long-distance busses and trains. France already made the pass mandatory last month for a host of other activities such as entrance to museums, pools, gyms and large sports events.

German ZEW Economic Expectations Fall for Third Straight Month

Economic expectations declined in Germany for a third consecutive month, due to a more challenging environment for the German economy, the ZEW economic research institute said Tuesday.

The measure of economic expectations decreased to 40.4 in August from 63.3 in July. The reading missed economists' forecast of 57.5 points taken from a survey by The Wall Street Journal.

Munich Re 2Q Profit Rose, Raises 2021 Gross Premium Target

Munich Re AG said Tuesday that net profit rose in the second quarter and raised its full-year target for gross premiums.

The German reinsurance company posted a quarterly net profit of 1.1 billion euros ($1.29 billion) compared with EUR579 million a year earlier, as announced last month.

Flutter Entertainment 1H Pretax Profit Soared

Flutter Entertainment PLC on Tuesday reported that its pretax profit more than tripled in the first half of the year, and said that performance exceeded internal expectations.

Flutter--which also owns the PokerStars, Paddy Power and Betfair brands--made a pretax profit of 77 million pounds ($106.6 million) for the half year ended June 30, compared with GBP24 million a year earlier.

Kloeckner Shares Fall After 2Q Earnings Miss Expectations

Kloeckner & Co. SE shares were down in early trade on Tuesday after second-quarter earnings came in slightly below analysts' expectations, despite a swing to net profit and a steep rise in revenue.

At 0845 GMT, shares in the German steel-and-metal distributor were down 3.9% at EUR12.27. The stock has risen more than 50% since the beginning of 2021.

U.K. Retail Sales Rose in July But Growth Pace Slows

Retail sales in the U.K. rose in July although growth has begun to slow, according to the latest report by KPMG and the British Retail Consortium.

British retail sales between July 4 and July 31 rose 6.4%, the report found. However, this was below the three-month average growth rate of 15%.

Belarus's Lukashenko Is Defiant After West Imposes More Sanctions

MINSK, Belarus-Belarusian leader Alexander Lukaskenko struck a defiant note at an hourslong televised briefing a year after claiming victory in a disputed election, scoffing at Western sanctions and vowing never to cede power to his political opponents, whom he dismissed as foreign-backed agents.

Monday's question-and-answer event with officials, academics and local and foreign journalists, billed as the "Big Conversation," lasted over eight hours and was broadcast live over state media. Mr. Lukashenko used it to lambaste his critics as the U.S., U.K. and Canada announced more financial sanctions to pressure him to step down after launching an often-violent crackdown on protesters seeking his removal.

GLOBAL NEWS

Progressive Opposition to Jerome Powell Clouds His Chances for Second Term as Fed Chairman

Members of President Biden's economic team generally support nominating Federal Reserve Chairman Jerome Powell to a second term, but growing resistance from prominent Democrats including Sen. Elizabeth Warren (D., Mass.) could lead to his replacement, according to people familiar with the matter.

(MORE TO FOLLOW) Dow Jones Newswires

08-10-21 0612ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.00% 0.71191 Delayed Quote.-7.63%
BELIEVE 2.94% 18.35 Real-time Quote.0.00%
BRITISH POUND / US DOLLAR (GBP/USD) 0.00% 1.32423 Delayed Quote.-2.90%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.06% 0.79083 Delayed Quote.-0.62%
DJ INDUSTRIAL 1.40% 35719.43 Delayed Quote.13.18%
EURO / US DOLLAR (EUR/USD) 0.04% 1.12771 Delayed Quote.-7.45%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.04% 0.013265 Delayed Quote.-2.93%
JPMORGAN CHASE & CO. 1.50% 162.57 Delayed Quote.27.94%
LONDON BRENT OIL -0.28% 75.06 Delayed Quote.37.62%
MUNICH RE 0.34% 250.55 Delayed Quote.1.24%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.03% 0.67784 Delayed Quote.-5.89%
REACH NEW HOLDINGS LIMITED -1.67% 0.59 End-of-day quote.136.00%
S&P 500 2.07% 4686.75 Delayed Quote.20.83%
S&P GSCI CRUDE OIL INDEX 1.52% 392.6667 Delayed Quote.36.56%
WTI -0.11% 71.709 Delayed Quote.37.48%
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