MARKET WRAPS
Watch For:
Canada Retail Sales for June; Canada New Housing Price Index for July
Opening Call:
Stock futures slid Friday, putting the S&P 500 and the Dow Jones Industrials Average on course to erase most or all of August's gains.
Stocks have been rocked this week by concerns that an uptick in Covid-19 infections globally and a slowdown in China's growth could impede the economic recovery. Worries about rising inflation levels and the Federal Reserve's signals that it will scale back some of its easy money policies are also weighing on sentiment. New lockdowns to contain the virus could put further pressure on supply chains, investors say.
"We're looking at a period of very strong, but also very uneven global growth over the next couple of months," said Hugh Gimber, a strategist at J.P. Morgan Asset Management. "The government reaction now looks very different across different parts of the world. If inflation does prove to be more stubborn, it could change how quickly the Fed has to tighten once they get going."
The Cboe Volatility Index, a gauge of turbulence in markets, rose to its highest level since May.
The sapping of risk appetite weighed on stocks world-wide. The pan-continental Stoxx Europe 600 fell 0.4% and has fallen 2.1% this week, on track for its worst week since February. Major stock indexes in Asia also ended the day lower.
Stocks to Watch:
Marker Therapeutics shares rose 25% after hours as the immuno-oncology company was awarded a $13.1 million grant from the Cancer Prevention and Research Institute of Texas. The company said the funding will support a Phase 2 clinical trial of its lead MultiTAA-specific T cell product, MT-401.
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Marriott International is expected to recover $18 million of its $87.5 million claim in the bankruptcy of the Wardman Park hotel in Washington, D.C.'s Woodley Park neighborhood, bankruptcy court records show. The property's secured lender and sole owner has been Pacific Life Insurance. The bankruptcy, which began in January, has been marked by fighting with Marriott, which managed the convention property under its name and has been the biggest unsecured creditor in the Wardman bankruptcy.
Forex:
The dollar continued to advance in Europe as investors weighed the dominating developments: U.S. economic growth concerns, the upcoming Jackson Hole symposium and ongoing Covid-19 fears.
OANDA said the dollar seems to be 'king' again in the currency space, noting U.S. growth jitters spurred by Goldman Sachs's massive downgrade of its third-quarter GDP growth forecast to 5.5% from 9%.
Cambridge Global Payments currency strategist Hector Demarco warned the economy could be decelerating, with recent economic indicators coming in "quite underwhelming" and growth prospects dimming due to Delta.
"This could delay the Fed's plan to slow asset purchases. A slowdown in economic activity could weaken inflation pressure and reduce hiring in the near term, pushing any reduction in bond purchases into the first quarter of 2022."
ING said investors should perhaps seek safety in the Japanese yen instead of the dollar amid concerns about the global economic recovery losing momentum.
"Given that speculators have been adding to long dollar positions since late June, it may be better to look for defensive positions in owning the JPY--where speculators are short," said ING analysts.
Bonds:
Long-dated Treasury yields edged down again in Europe as investors continued to snap up bonds on growing worries over economic activity.
"Rising delta worries are part of the story to recent Treasury strength, " said David Gagnon, head of Treasurys trading for Academy Securities. "Until we get a catalyst to push rates higher, the huge liquidity from global central banks is forcing investors to buy Treasuries more because they `have to' rather than they `want to.'"
The FOMC minutes has prompted Bank of America to move up to November from January its forecast for when the Fed will start to reduce bond purchases.
The minutes stated that "most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year," which BofA said drove its move. "November appears the most likely time to start taper due to the Fed calendar and operational considerations. That said, any decision to begin tapering asset purchases will be highly conditional on the data flow."
Eric Vanraes, head of fixed income at Eric Sturdza Investments said expectations regarding the Fed making an announcement at the Jackson Hole meeting on tapering are exaggerated.
Jerome Powell "will most likely only comment on the key points of the minutes...with a few updates, including the news we have learnt since the beginning of August," said Vanraes. He added that Powell could potentially mention the timing of the next round of tapering but will probably defer to the next FOMC meeting in September, "stating this will be the official and formal moment to announce the details of their policy, including tapering."
Vanraes said a $15 billion/month tapering would be a "reasonable" amount, including $10 billion in Treasuries and $5 billion in mortgage-backed securities.
Commodities:
Oil gave up modest Asian gains to trade near-flat in Europe and Bank of America expects prices to remain in their recent range for the rest of 2021. OECD inventories have fallen to their lowest in five years, but BoA doesn't expect further large draws due to the Delta variant.
Copper prices were 1% higher but still on course for their worst weekly fall in a month, with commodities having been hit this week by a stronger dollar and persistent concerns about coronavirus strains.
"Markets don't like what they see here and are perhaps coming to grips with the possibility of a world being locked into an endless loop of recurring viruses that could impede movement and the flow of commerce for months and perhaps years to come," said Ed Meir at ED&F Man.
Gold prices inched higher as the precious metal is caught between a stronger dollar and concerns about rising virus cases but investors remained lukewarm on the precious metal as the Fed's tapering plans risk lifting the dollar and bond yields. Still, geopolitical risks and concerns about the Delta variant have kept gold supported.
Gold is up 0.5% for the week but palladium and platinum--precious metals with industrial applications--have fared worse, amid concerns about fresh virus cases. Palladium is down over 5% for the week, while platinum is down 2.5% to date.
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08-20-21 0554ET
