MARKET WRAPS
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U.S. 2Q Preliminary Productivity & Costs
Opening Call:
Stock futures struggled for direction Tuesday as investors awaited 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."
In out-of-hours trading, AMC Entertainment Holdings rose almost 9% after one of the original meme stocks said Monday it was planning changes to its theaters that are aimed at appealing to its loyal following of Reddit investors, including accepting bitcoin. Clover Health, another meme stock popular with Reddit-based investors, rose 5%.
SmileDirectClub slumped over 15% in off-hours trading. The direct-to-consumer teeth-straightening business said Monday that quarterly revenue fell short of its expectations after taking a heavy hit from an April cyberattack.
Moderna gained 2% premarket. The biotech company's shares had already jumped 17% Monday after two reports showed that its Covid-19 vaccine was more effective against the Delta variant than a rival shot made by Pfizer and BioNTech.
Earnings are expected Tuesday morning from Casper Sleep, Aramark, Sysco and Eastman Kodak. Cryptocurrency exchange Coinbase Global and software company McAfee are set to release earnings after markets close.
Overseas, the Stoxx Europe 600 rose 0.2%, led by the travel and technology sectors, while in Asia, stock markets mostly rose. In Japan, the Nikkei 225 edged up 0.2%, while Hong Kong's Hang Seng Index rose 1.2%. In mainland China, the Shanghai Composite Index added 1%.
Stocks to Watch:
Dynatronics shares rose 23% after hours as the company said fiscal fourth-quarter net sales were about $12.1 million and that customer and dealer reaction to its production optimization has been favorable. The maker of athletic training, physical therapy and rehabilitation products said in April that it would eliminate low-margin third-party items. Dynatronics and its customers continue to face issues related to the pandemic, including higher shipment costs and supply chain disruptions.
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Defense contractors are evaluating the Pentagon's decision to pursue mandatory Covid-19 vaccination of service members by September. Lockheed Martin, Boeing, Raytheon and others already need to comply with federal requirements on masking and vaccination, especially at government-owned facilities, but have so far stopped short of their own mandates in favor of incentives to employees to get vaccinated.
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Mesa Air said it has been short of spare aircraft because of shortages of parts and materials during maintenance. The main challenge has been on CRJ regional jets it flies for American, with issues that emerged in July continuing into August and including interior refits. Mesa, which also flies passengers on behalf of United, said it expects demand to remain strong through the year and is accelerating hiring. Shares fell 2% in after hours trading.
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Shares of wearable medical robotics company Myomo traded around 19% higher in Monday's after-hours session, following the company's release of second-quarter financial results that showed revenue rising 262% from the year-ago period. After the bell, the company reported second-quarter revenue of $3.1 million. In the year-ago period, the company said it had revenue of $858,590. The company also said in the quarter "revenue units were 80, up 233% including a record 38 units where orders and insurance authorizations were received during the quarter." The company said its backlog of 160 units as of June 30 was up 36% compared with March 31.
Forex:
The dollar was higher again after Fed officials 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.
Bonds:
Treasury yields edged slightly lower in Europe after they climbed on Monday on data that showed record U.S. job openings for June, pointing to strength in the labor market, despite lingering concerns about the spread of the delta variant.
A "real and broadening" restart of the global economy is under way - with the U.S. "passing the baton" to Europe and other developed markets, even as Covid-19's delta variant presents a challenge for emerging countries, according to the research arm of BlackRock.
For now, the global-restart scenario "supports our pro-risk stance and our underweight in government bonds as we believe their low yields don't reflect the restart's momentum," Jean Bolvin, Elga Bartsch, Wei Li, and Nicholas Fawcett of the BlackRock Investment Institute said in a note.
Bond issuance in dollars is likely to outstrip euro bond sales this week, though more U.S. companies could raise funds in euros, said Mizuho analysts.
"We expect U.S. corporates will continue to issue strongly this week, while European issuance will remain subdued," said analysts at the bank, adding that this should translate into low euro, and higher dollar issuance. Yet cheaper funding in euros may entice more U.S. companies to raise funds in euros, a transaction known as reverse yankees.
"The favorable euro funding conditions right now may mean more reverse-yankee issuance following Becton Dickinson and Co's 4-tranche euro offering," they said.
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.
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08-10-21 0602ET
