MARKET WRAPS
Watch For:
Weekly Jobless Claims
Opening Call:
Stock futures fell Thursday, while oil and copper prices retreated and the dollar strengthened as investors weighed the likely reduction in stimulus measures by the Federal Reserve and rising Covid-19 cases.
Stock markets have hit turbulence this week after eking out a series of record highs. Investors broadly remain upbeat about the outlook for share prices, given the rapid pace of earnings growth. But some have grown more cautious, concerned that rising coronavirus cases in the U.S. and elsewhere will dent the global economic recovery at the same time as the Fed is gearing up to rein in its huge bond-buying program.
"These things are going to cause market volatility," said Caroline Simmons, U.K chief investment officer at UBS Global Wealth Management. "People are trying to work out what [the Delta variant] is going to mean: does it mean more lockdowns, is it going to damage growth?"
The Cboe Volatility Index, a gauge of expected swings in the stock market, rose to 23.52. That marked its highest level since May.
Investors will glean fresh insights into the pace of the recovery when weekly data on claims for jobless benefits are published at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal forecast that the figures will show initial claims, a proxy for layoffs, fell to a new pandemic low last week, in a sign the labor market is healing.
Overseas markets followed Wall Street lower. The Stoxx Europe 600 slid 1.9%, led lower by shares of basic-resource, retail and oil-and-gas companies.
Chinese technology stocks sold off, led by some of the country's Internet giants, after two government ministries said they were likely to impose additional regulations on the sector. The broader Shanghai Composite Index fell 0.6% by the close of trading.
The Hong Kong-listed shares of Alibaba Group Holding tumbled 5.5% to their lowest close since their secondary listing in November 2019, while shares of food-delivery giant Meituan dropped 7.2%. The city's flagship Hang Seng Index ended 2.1% lower on Thursday.
Stocks to Watch:
Cisco expects supply-chain challenges, which have weighed on profit, to carry into fiscal first half and potentially into fiscal second half. Cisco gave full-year guidance and said supply-chain issues largely account for the difference between the high end and low end of guidance. The low end of the annual guidance, officials said on an earnings call, assumes that supply-chain issues remain through most of fiscal second half.
Cisco's remaining performance obligations, which include deferred revenue plus unbilled contract revenue, reached a record $30.9 billion, up 9%. Of that, more than half is expected to turn into revenue over the next 12 months, company officials said Wednesday. That, along with the share of recurring revenue as well as renewal rate trends and a strong pipeline, officials said in an earnings call, give Cisco confidence in its full-year guidance.
Cisco Chief Executive Chuck Robbins said that while he doesn't expect the 31% order growth to become the new standard, customers are still working on modernizing their infrastructure and technology to meet hybrid work demands.
"What they're seeing is that with the Delta variant...this may not be one move back to the office," Robbins said in an earnings call. "They're going to have to be resilient. They're going to have to build adaptability in for (the) future because we could have the next variant six months from now."
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Special purpose acquisition company NextGen Acquisition said its shareholders approved its previously announced business combination with electric vehicle company Xos. Following the close of the deal, which is expected to take place on or about August 19, the combined company will take the name Xos Inc. Shares of the company are expected to begin trading on the Nasdaq on Aug. 20 under the symbol "XOS." Xos said it "designs and develops fully electric battery mobility systems specifically for commercial fleets."
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Nvidia doesn't see the current mismatch between low supply and high demand for semiconductors ending soon. "I would expect a supply-constrained environment for the vast majority of next year," CEO Jensen Huang said on a call with analysts following the company's earnings report. Nvidia reported record revenue and profit amid surging demand for chips. Shares rose 3% after hours.
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Red Robin Gourmet Burgers shares fell 10% after hours as the company said second-quarter performance was below its expectations, due to factors including "ongoing jurisdictional restrictions and challenging labor availability." The company's revenue rose 72% to $277 million. Net loss was 32 cents a share, compared with a loss of $4.09 a share a year earlier. Adjusted loss per share narrowed to 22 cents from $3.31. Red Robin reported a strong performance for restaurants offering Donatos pizza, positioning the company for annual pizza sales of over $60 million by 2023.
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Starwood Real Estate Income Trust said it was increasing its offer to acquire Monmouth Real Estate Investment to a net consideration of $19.20 a share in cash. Starwood said the new offer was for $19.93 per Monmouth share, reduced by a termination fee owed to Equity Commonwealth of 73 cents a share. Shares of Monmouth finished the day's regular-trading session with a 0.6% gain. The stock was slightly higher after-hours, gaining 1%.
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Trinity Industries said it launched a railcar investment vehicle program structured as a new joint venture with certain funds managed by Wafra. The company said the JV, Signal Rail, will invest in diversified portfolios of leased railcars originated by Trinity Industries Leasing, adding the JV is "targeting up to $1 billion in total acquisitions over an expected three-year investment period." Wafra Funds will own 90% of the JV, with Trinity Industries Leasing owning the remaining 10%. Trinity Industries Leasing will continue to service the railcars owned by Signal Rail, the companies said. Signal Rail acquired an initial portfolio of about 3,600 railcars, "representing a diverse pool of on-lease railcars from TILC's leased railcar fleet," the companies said.
Forex:
The dollar strengthened in the wake of the Fed minutes with the ICE Dollar Index hitting its highest level since last November.
ING said risk sentiment remained the most important driver for the dollar. While signalling the Fed is inching towards tapering asset purchases, the tone in the minutes wasn't more "hawkish" than some officials expressed after the strong July nonfarm payrolls report, said ING's analysts.
"The initial negative market reaction in the dollar was probably a sign that some hawkish expectations had not been met, but the greenback was soon back on an upward trend as risk assets remained under pressure into today's Asian session."
Overall, the near-term uptrend for the dollar remains intact with ongoing higher highs and higher lows since June, and the closing-in of tapering timeline ahead could possibly act as a tailwind for further currency strength, said IG.
Peter Ng, senior FX trader at Silicon Valley Bank thinks the FOMC minutes "came in slightly more dovish than people were expecting. The minutes seem to lack consensus over tapering and a lot of questions weren't addressed, he said.
The next jobs data and September FOMC will probably hold more weight now." He said that Fed doves seem to be kicking the can down the road. "They prefer to see more data before committing to tapering."
UOB said the USD Index may have begun its next up-leg, based on technical charts. This week the USD Index has risen strongly and earlier tipped above the April high of 93.44.
Although the break above 93.44 hasn't yet been confirmed on a weekly closing basis, this breach has been accompanied by a swift build-up in momentum and further gains seem likely within these couple of months, said UOB, pegging the next resistance at the 55-month exponential moving average of 94.00.
The euro's fall below $1.17 was inevitable given the deterioration in global market sentiment and the lack of positive idiosyncratic drivers for the currency, said ING.
"The next key support for the pair should be at the 1.1600 November lows. At this stage, more consolidation in the USD bullish trend could soon see markets look to 1.1500 as a next pivotal level in EUR/USD," ING said.
Bonds:
Treasury yields slid further in Europe after they gave back some of their early gains Wednesday following the FOMC minutes.
Despite the overall hawkish tone, "the minutes also noted that 'several' officials thought that 'an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace'," said Capital Economics.
"It's clear from the minutes that the Fed isn't ready to start tapering yet, but they are leaning towards making an announcement by the end of the year at the latest," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
"In the short run, the market is going to remain focused on growth and delta variant concerns, but as we move past those challenges, the good news about the economy and job market should give investors a renewed boost of confidence."
Commodities:
Commodity prices extended recent declines. The stronger dollar added to pressure stemming from forecasts that China's economic slowdown will weigh on demand for industrial materials.
Oil futures fell around 3% in Europe, hitting their lowest since May, intraday, as the latest Fed minutes propelled the dollar to a nine-month high. DNB Markets' Helge Andre Martinsen said investors were disregarding bullish EIA data and focusing instead on broader macroeconomic concerns, with commodities and equities firmly in the red.
Copper hit a four-month low on the LME, extending Wednesday's retreat and dragging prices down more than 7% so far this week. The likelihood of Fed tapering and concerns about demand, driven by the Delta variant, were weighing on metals.
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08-19-21 0556ET
