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North American Morning Briefing: Stock Futures Edge Up as Fed Minutes Awaited

07/07/2021 | 06:01am EDT

MARKET WRAPS

Watch For:

U.S. Job Openings & Labor Turnover Survey for May, Federal Open Market Committee meeting minutes and economic forecast

Opening Call:

Stock futures ticked up Wednesday ahead of the release of the Federal Reserve's latest meeting minutes and fresh data on the labor market.

Investors have propelled the major indexes into record territory following signs that the economy is recovering and that the Fed doesn't plan to pull back on supportive policies in the near term. Government bond yields have also dropped to their lowest in over four months, bolstering appetite for assets like growth stocks that deliver higher returns.

"It's really the tech space that's been driving the market," said Esty Dwek, head of global market strategy at Natixis Investment Solutions. "Over the next few weeks and months, hopefully we'll see that U.S. growth is holding up well, that will continue to support markets."

Overseas, the pan-continental Stoxx Europe 600 was trading close to its all-time high.

Stocks to Watch:

Angi is rolling out a feature that allows consumers to browse and buy common household services at set prices. The option is first becoming available to certain Angi subscribers and supplements the current system, which allows users to browse professionals in a directory or submit a project request. Angi executives say they are trying to bring transparency and standardization to the home improvement space and have mimicked the feature to resemble an e-commerce store.

"The more we can merchandise and display to the user in a visual way, like the same way you'd scroll an Amazon or a Target catalog online, the more we can make it easy for people to digest," said Oisin Hanrahan, chief executive of Angi.

Athene Holding and its strategic partner, Apollo Global Management, have agreed to acquire a 15% minority interest in Australian financial-services company Challenger from an existing shareholder. When combined with other Challenger shares acquired by Athene and Apollo, the acquisition of the 15% equity interest will result in a total expected minority economic interest of 18%, making its stake worth $539.6 million. The selling shareholder is Caledonia Private Investments, Challenger said.

Burger King Americas President Chris Finazzo has left the fast-food chain, the company said in a SEC filing on Tuesday. Burger King's Chief Marketing Officer Ellie Doty and Chief Operating Officer Tom Curtis will take over his responsibilities on an interim basis in which they will oversee the restaurant chain's brand and business in the U.S. and Canada. Both will report to José Cil, chief executive officer of Burger King parent Restaurant Brands International.

Forex:

The dollar was largely flat in Europe as investors awaited the latest Fed minutes.

Commerzbank said the minutes are unlikely to differ hugely from the information provided at the June 16 meeting when the Fed brought forward its expectations for interest rate rises. "That in turn means that even following careful scrutiny there will not be much reason for any moves in the dollar," said currency analyst Antje Praefcke.

Market uncertainty about the Delta coronavirus variant and its potential impact on economies is likely to set the tone in the short term, she said.

ING said the euro could fall against the safe-haven dollar Wednesday, dragging the sterling-dollar exchange rate lower too, on poor risk appetite and the Fed minutes.

"EUR/USD may gain more downside momentum if the psychological 1.1800 support is broken today," said ING analysts.

Risk appetite could remain weak after correcting lower Tuesday following a fall in oil prices, a weak U.S. ISM non-manufacturing report and China's crackdown on tech companies listed abroad. The dollar could also receive a boost from "hawkishness" in the Fed's minutes.

Bonds:

Government bonds continued to rally, sending the yield on the benchmark 10-year Treasury note ticking down to 1.331% and extending its recent slide into a third day. On Tuesday, the yield fell to 1.369%, its lowest level since late February.

The Fed's minutes from its June meeting will be scrutinized by investors for any discussions among policy makers about when they may ease back on bond-buying programs.

The meeting notes "may not be as hawkish as people expect," said Esty Dwek of Natixis. "They've shown us that they are not asleep at the wheel and they're keeping an eye on inflation, but they still expect it to be transitory."

Investors are weighing signals that the pace of economic growth may be slowing after weaker-than-expected data Tuesday from the Institute of Supply Management on the services sector, which fell short of economists' expectations. That led to the rally in bonds on Tuesday, said Paul Flood, multiasset fund manager at BNY Mellon Investment Management.

The weaker data "takes a little bit of heat out of concerns about policy tightening happening sooner rather than later," according to Mr. Flood. "The bond yields falling, that puts the relative opportunity more in favor of equity markets," he added.

Data on job openings in May, seen as a gauge of the labor market's health, is due out at 10 a.m. Job openings have surged as the economy recovers from the pandemic, hitting 9.3 million in April. Economists are expecting it to have held steady at that level in May.

"One of the keys going forward is going to be the labor market. It has not made enough progress for the Fed" to pull back on stimulus programs, said Ms. Dwek.

Meantime, Natixis doesn't rule out a new flare-up in reflation trade in government bonds. The backdrop is a news flow that remains "excellent," as well as a more aggressive tone from the Fed. Natixis added that real rates have significant upside potential that is increasingly asymmetrical following the Fed's June monetary policy meeting.

Commodities:

Oil prices steadied in Europe after they suffered their worst drop in months on Tuesday as the market continues to assess the fallout of the aborted OPEC+ meeting.

"While on paper no increase in quotas would lead to an extremely tight forward-looking market, it also significantly raises the potential for non-compliance, a major concern with upwards of 5+ [million barrels a day] OPEC+ production still offline," said J.P. Morgan in a note.

Gold futures rose ahead of the Fed meeting minutes. While they will be keenly eyed for further clues on plans for the Fed's bond-buying program and interest rate hikes, the minutes are unlikely to yield many surprises, said Commerzbank analyst, Carsten Fritsch.

Three-month copper prices rose 2% on the LME to $9,499 a metric ton, as the dollar's rally stalled and China completed the first round of sales from its metal reserves.

While the planned sales initially sparked concern and hit prices, the quantities thus far earmarked for sale have been smaller than expected, said Saxo Bank. "It was not a quantity that shook the market," said Ole Hansen, head of commodity strategy.

Jefferies said even if commodity prices have hit their peak, the valuations of major diversified miners remain compelling on the long run outlook.

"While valuations may not be relevant during short-term periods, especially when commodity prices are falling, we would argue that valuations should matter most in the long term." The risk to mining stocks might be if commodity prices crash from today's levels to lower, long-run pricing very quickly, rather than over several years, or if companies make large, value-destructive investments, Jefferies said.

TODAY'S TOP HEADLINES

JPMorgan, Goldman Call Time on Work-From-Home. Their Rivals Are Ready to Pounce.

There is a growing divide on Wall Street: firms calling employees back and firms telling people they can work from home.

Titans like Goldman Sachs Group Inc. and JPMorgan Chase & Co. are taking a hard-line approach, beefing up in-person staff five days a week in New York even though it might mean losing talent. Rivals including Citigroup Inc. are touting flexibility, betting that a softer approach will help them poach top traders and deal makers.

Read More ->

YouTube's Search Algorithm Directs Viewers to False and Sexualized Videos, Study Finds

YouTube has instituted many changes over the past year to limit the problematic videos it recommends to viewers. A new study suggests the repairs have a way to go.

Software nonprofit Mozilla Foundation found that YouTube's powerful recommendation engine continues to direct viewers to videos that they say showed false claims and sexualized content, with the platform's algorithms suggesting 71% of the videos that participants found objectionable.

Read More ->

WHO Urges Covid-19 Treatment With Roche and Sanofi Anti-Inflammatory Drugs

The World Health Organization recommended that certain hospitalized Covid-19 patients be given a type of anti-inflammatory drug found to reduce the risk of death by 13% in the sickest patients when taken in combination with steroids.

The global public-health agency updated its Covid-19 treatment guidelines on Tuesday to strongly recommend that people with severe or critical disease be given drugs tocilizumab and sarilumab to combat the haywire inflammatory immune reaction of some patients.

Read More ->

Aon Dealt a Blow in Bid for Quick Trial on U.S. Challenge to Willis Towers Merger

WASHINGTON-A federal judge said he can't schedule a summer trial in the Justice Department's antitrust lawsuit challenging insurance broker Aon PLC's proposed acquisition of rival Willis Towers Watson PLC, a blow to Aon's bid to save a deal that expires Sept. 9.

U.S. District Judge Reggie Walton instead said Tuesday he plans to hold trial proceedings for a few days beginning Nov. 18, and then again during an opening in his schedule from Dec. 20-22. A decision could take weeks or months after those proceedings conclude.

Read More ->

Shell to Increase Shareholder Distributions

(MORE TO FOLLOW) Dow Jones Newswires

07-07-21 0600ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.24% 0.61992 Delayed Quote.-2.12%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.54% 0.72693 Delayed Quote.-6.06%
BRITISH POUND / EURO (GBP/EUR) 0.03% 1.16528 Delayed Quote.4.10%
BRITISH POUND / US DOLLAR (GBP/USD) 0.36% 1.36642 Delayed Quote.-0.12%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.67% 0.673709 Delayed Quote.3.40%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.98% 0.78964 Delayed Quote.-0.64%
CITIGROUP INC. 1.94% 68.24 Delayed Quote.10.67%
DJ INDUSTRIAL 1.00% 34258.32 Delayed Quote.10.99%
EURO / US DOLLAR (EUR/USD) 0.27% 1.17243 Delayed Quote.-4.03%
INDIAN RUPEE / EURO (INR/EUR) 0.03% 0.01158 Delayed Quote.3.25%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.20% 0.013564 Delayed Quote.-0.91%
JPMORGAN CHASE & CO. 1.92% 155.91 Delayed Quote.20.39%
LONDON BRENT OIL 0.63% 76.36 Delayed Quote.43.56%
NATIXIS 0.03% 4.001 End-of-day quote.0.00%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.71% 0.7037 Delayed Quote.-2.56%
SANOFI 0.64% 83.27 Real-time Quote.5.12%
SCROLL CORPORATION -1.02% 875 End-of-day quote.12.47%
US DOLLAR / EURO (USD/EUR) -0.30% 0.852929 Delayed Quote.4.20%
WTI 0.65% 72.349 Delayed Quote.46.62%
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