MARKET WRAPS

Watch For:

2Q GDP estimate; Weekly Jobless Claims; Toronto-Dominion Bank 3Q earnings

Opening Call:

Stock futures wavered Thursday ahead of economic data that could provide fresh insights into the pace of the recovery.

Stocks have ground upward this week, pushing both the S&P 500 and Nasdaq to all-time highs. Money managers say their focus is largely on comments expected from Federal Reserve officials on Friday that could offer cues on the central bank's plans for tapering stimulus measures. Some investors are betting that the Fed may slow those plans if there are signs that the economic recovery is faltering.

Data on the U.S. economy's growth in the second quarter and on the latest week's jobless claims, seen as a proxy for layoffs, are both due at 8:30 a.m. ET. That data is likely to feed into policy makers' view on the recovery, investors have said.

"Risk assets have done well this last week and as we go into the Fed event, there is some profit taking," said Shaniel Ramjee, multiasset fund manager at Pictet Asset Management. "No one can honestly say they know what's going to happen, this uncertainty will put some reduction on risk."

Applications for unemployment benefits reached a new pandemic low in the second week of August, signaling an improving labor market. Economists are expecting Thursday's data to show a level that is relatively unchanged.

"The labor market is clearly recovering very well," said Matteo Cominetta, an economist at Barings. But the next few weeks will be crucial because federal unemployment benefits in the U.S. are being phased out, so "now you will see if the labor market can walk on its own. It is still a very mixed picture," he said.

The health of the labor market is a key indicator used by the Fed, so this uncertainty is another reason why the central bank is likely to remain cautious, Mr. Cominetta said.

Ahead of the market opening, Salesforce.com shares rose nearly 2% after the business-software company reported a jump in quarterly sales and raised its full-year outlook on Wednesday evening.

Peloton Interactive, Gap and Dell Technologies are scheduled to post results after markets close.

Overseas, the pan-continental Stoxx Europe 600 slid 0.3%, while in Asia, most major benchmarks declined by the close of trading.

Stocks to Watch:

Becton, Dickinson said the FDA issued an emergency use authorization for the company's Veritor At-Home Covid-19 Test, which allows users to use a smartphone to interpret and display results. The company said users can complete the nasal-swab test in the privacy of their homes and use the camera on their smartphone to "capture, analyze and interpret the results, which eliminates the human subjectivity of a visually read test." The mobile app from Scanwell Health is available on iOS and Android and provides step-by-step instructions, BD said.

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Pure Storage expects demand for its flash-memory based enterprise storage products and services to continue to rise as customers continue spending on their on-premises data infrastructure while shifting more of their work toward the cloud. As a result, the company lifted its sales forecast for the fiscal 2022 year, sending shares up 9.9% after hours.

Pure Storage anticipates revenue around $2.04 billion for the year, beating analysts' consensus estimates of $1.96 billion. For the current quarter, it projects revenue of $530 million, ahead of analysts' forecasts of $496.6 million for the third quarter. It recorded revenue of $496.8 million for the second quarter, up 23% from the same period a year earlier and topping analysts' estimates of $471.6 million. GAAP losses narrowed to 16 cents a share from 25 cents a share a year ago. Analysts predicted a loss of 19 cents a share.

CEO Charles Giancarlo told WSJ that Pure Storage's 2Q subscription services revenue increased 31% over last year to $171.9 million and the company doesn't see that growth slowing down soon.

Pure Storage's subscription services business enables customers to orchestrate or construct their IT infrastructure solely through code. "This is working well for us and it's the reason why it's growing so quickly."

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Splunk said it expects to end the year with sales around $2.53 billion to $2.6 billion as the company sees strong demand for its cloud services and bookings continuing. The company said it expects annual recurring revenue, a closely watched metric for companies with subscription revenue, to be around $3.09 billion to $3.14 billion. Cloud ARR is projected to be around $1.31 billion to $1.33 billion for the year.

For the third quarter, Splunk projects revenue around $625 million to $650 million and total ARR around $2.8 billion to $2.83 billion. It anticipates cloud ARR to be around $1.1 billion to $1.11 billion for the quarter. Splunk's shares rose 4% after hours.

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Shares of Zuora rose more than 13% in the extended session after the company reported fiscal second-quarter sales above expectations and a per-share loss that matched forecasts. Zuora said it lost $23.7 million, 19 cents a share, in the quarter, compared with a loss of $20.1 million, or 17 cents a share, in the year-ago quarter.

Adjusted for one-time items, Zuora lost 4 cents a share. Revenue rose 15% to $86.5 million, the company said. Analysts polled by FactSet expected the company to report a loss of 4 cents a share on sales of $83 million. The company guided for revenue between $86 million and $87 million for the fiscal third quarter, and between $340 million and $342 million for fiscal 2022. It forecast an adjusted per-share loss between 3 cents and 2 cents for the third quarter, and a per-share loss between 13 cents and 11 cents for the fiscal year.

Chief Executive Tien Tzuo said: "We feel well-positioned and positive about the future based on the overall momentum and execution we have seen this quarter."

Forex:

The dollar was a touch higher in Europe and may find further support ahead of Jackson Hole.

While expectations have been scaled back and few anticipate Powell will send a clear taper signal, key Fed officials will probably stress confidence that "substantial further progress" is on the horizon and that a slowing of asset purchases could start in coming months, said Westpac. This would likely leave the dollar's broad uptrend into the fourth quarter intact.

Rabobank said the dollar is likely the strengthen in coming months even if the Fed pushes back the timeline for tapering asset purchases. Dallas Fed President Robert Kaplan last Friday said he may rethink his view that tapering will need to start soon if the rise in Delta coronavirus variant cases slows economic growth materially.

"While this would be a USD negative factor on one hand, Delta worries may simultaneously increase its safe haven appeal," said Rabobank forex strategist Jane Foley. "On balance, while pullbacks are likely to be par for the course, we see scope for EUR/USD to head towards 1.16 on a six-month view."

Bonds:

The yield on the benchmark 10-year Treasury note climbed for a third day, reaching the highest level in two weeks. The rise in bond yields is signaling that investors see a higher possibility that the Fed on Friday will signal plans to curb stimulus measures, said Pictet's Ramjee. "The market is correcting around that."

With the economy rebounding, it's "high time" for the Fed to tighten policy, said Franklin Templeton, as investors await any comments on the Fed's plans to taper asset purchases at the Jackson Hole symposium.

"The robust recovery, high inflation and record asset prices call for the Fed to wind down an extraordinary monetary easing that is also exacerbating economic inequality," said Templeton's chief investment officer for fixed income, Sonal Desai.

Desai's view contrasts with the expectations of some that Powell may be cautious due to recent rising Covid-19 cases, and she expects an above-consensus rise in bond yields. Increased volatility is likely as markets anticipate changes in the Fed's policy regime, Desai said. Limiting duration remains one of Franklin Templeton's main underlying strategy themes.

Standard Chartered thinks Powell is likely to affirm recent indications by Fed officials that a tapering announcement is likely at the November FOMC meeting.

In his speech on Friday, Powell will likely stress that tapering is contingent on economic outcomes meeting expectations, Standard Chartered said. Powell is also likely to draw a distinction between tapering and raising policy rates. Asset prices could move on Powell's speech even if it is close to expectations, Standard Chartered said.

"If Asia Covid-19 concerns continue to recede and Powell does not shock on the hawkish side, a risk-positive market move could occur absent any surprise."

Commodities:

Oil prices extended their losses in Europe despite bullish inventory data, as concerns about the Delta coronavirus variant and upcoming OPEC+ supply increases weighed on sentiment.

Wednesday's EIA data is "not enough to keep the current rally...going for much longer," said Bart Melek, head of commodity strategy at TD Securities. Crude will continue to face headwinds from the coronavirus as vaccination rates take time to rise. At the same time supply increases in the coming months and the likely tapering of Fed's bond-buying program "will very likely be an additional headwind," Melek added.

Copper prices edged lower as supply concerns eased and the dollar rose.

Supervisors at Andina copper mine, run by Codelco--Chile's state-owned miner--have reached an agreement on pay, ANZ said, lifting concerns about strike action. Investors' risk appetite remains supportive for base metals but "the market remains wary that demand recovery may be susceptible to further weakness as the pandemic is not over."

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08-26-21 0602ET