MARKET WRAPS
Watch For:
PMI data for eurozone, Germany, France, UK; trading updates from Julius Baer, Naturgy Energy, Ryanair, Vodafone, Philips, Royal KPN, Anglo American Platinum
Opening Call:
European shares may decline at the start of the week as traders await central-bank decisions and more corporate earnings. In Asia, stock benchmarks were mostly higher; the dollar was steady; Treasury yields were little changed; while oil and gold futures fell slightly.
Equities:
European stock futures were lower early Monday as investors looked ahead to this week's central-bank rate decisions and corporate earnings releases.
Barring a sizable selloff, most U.S. stock indexes finished higher last week, even as individual stocks at times responded poorly to results from companies like Netflix, Taiwan Semiconductor Manufacturing, Tesla and IBM.
Corporate earnings reports for the second quarter have been mixed so far.
"The bears were finally able to find some solace in the market's reaction to Tesla's earnings, and again Netflix, although their numbers certainly weren't dire. It was that the market wasn't going to reward Tesla's softer opening margins or that prices would be cut again during 'turbulent times,'" said Quincy Krosby, chief global strategist at LPL Financial.
"The current market is priced for perfection. When a company comes out, beats, and guides higher, it still can go down if there are any concerns or worries," said Louis Navellier, chairman and founder of Navellier & Associates, pointing to Tesla's results in particular.
"There also seems to be a little anxiety on some of the top tech stocks as they are going to get a haircut on Monday on the Nasdaq realignment," added Navellier. Nvidia and Microsoft are the most affected by the Nasdaq rebalancing.
Navellier was referring to the Nasdaq-100 index rebalancing, which took place Friday after the close and will be effective for Monday's open, as well as the expiration on Friday of some $2.3 trillion of U.S.-listed options.
Meanwhile, financial-market investors fully expect the Federal Reserve to raise interest rates again after this week's policy meeting, but then take a long pause until the November meeting, and Fed Chair Jerome Powell's comments Wednesday may even suggest that the July 26 move is a "one and done."
However, market analysts think this week's mega-cap technology company earnings and guidance may prove to be even more important than the Fed meeting.
"If the bears have their way next week, with company specific weakness disciplined by the market, they will have declared victory that rich mega-tech valuations have been priced for perfection that even an adoring market can't reward," said Krosby.
Read: Tech stocks look strong, but here's a sign the sector is actually under a lot of stress
Forex:
The U.S. dollar was little changed in Asia. Non-U.S. stocks will be particularly attractive to U.S. investors if the U.S. dollar continues to fall against foreign currencies. Many are predicting such a decline. One analyst even expects the dollar to "wipe out all its post-pandemic gains."
A declining dollar benefits U.S. investors in non-U.S. stocks for two reasons: The local-currency gains of the non-U.S. stocks themselves, and the increased value of those local currencies in U.S. dollar terms.
U.S. investors who own non-U.S. stocks have been enjoying this double-barreled gain since last September, when the U.S. Dollar Index hit a high of nearly 115. It stands at around 100 now.
Since that September high, non-U.S. stocks have beaten U.S. equities by more than three percentage points, as judged by the Vanguard Total International Stock ETF and the Vanguard Total Stock Market ETF.
Bonds:
Treasury yields were steady early Monday. Most yields were either little changed or slightly lower Friday after data showed U.K. retail sales rose more than expected in June as inflation eased, offering parallels to the U.S., where consumption has remained healthy at a time of waning price pressures.
There was no U.S. economic data released Friday as traders prepared for Wednesday's Fed policy announcement. Fed funds futures traders are almost 100% certain that the central bank will deliver another quarter-percentage-point interest-rate increase, which would raise the Fed funds rate target to 5.25%-5.5%. They see a 28.3% chance of a similar-size move by November, according to the CME FedWatch Tool.
"We expect the Fed to raise the federal funds rate by 25bp [basis points]" Wednesday, said Daniel Vernazza, chief international economist at UniCredit Bank in London.
"Most Fed officials have indicated they expect further tightening this year and it seems unlikely they would skip a hike two meetings in a row."
"The post-meeting statement will likely leave the door open to further tightening, while in the press conference Fed Chair Powell is likely to emphasize that this depends on incoming data. We expect a July hike to be the last," Vernazza said.
Read: Everyone thinks the Fed's rate hike this week will be the final one -- except the Fed
Energy:
Oil futures declined in Asia, retreating following last week's rally. "Sentiment was boosted as evidence finally emerged of a decline in Russian supply," ANZ said.
However, investors are worried about the rising risks of supply disruptions as the Ukraine war is intensifying, ANZ added.
Metals:
Gold futures edged lower in Asia, although analysts expect volatile trade across markets in the coming week.
"Focusing first on the Federal Reserve, the FOMC is seen raising borrowing costs by 25 basis points to 5.25%-5.50% at the conclusion of its July meeting on Wednesday," said DailyFX strategist Diego Colman.
Investors will also be closely watching the interest-rate decisions of the European Central Bank and the Bank of Japan, Colman added.
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Copper edged higher on hopes for Chinese stimulus measures, which could be announced at the Politburo meeting expected at the end of this month.
Investors appear to be adding exposure to the base metal amid stimulus optimism in China, TD Securities commodity strategists said.
The recent Chinese measures and rumors can help aid base metals but there hasn't been any indication that the measures could halt deterioration in broad commodity demand, TD added.
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Iron-ore futures rose ahead of China's Politburo meeting expected at the end of this month, where policy makers may unveil stimulus steps, though gains are likely to be capped.
Any policy-support measures announced by China in coming weeks could be limited, CBA said.
CBA maintains its view that iron-ore prices will fall to $100 per ton by 4Q with China's steel demand expected to ease in 2H.
TODAY'S TOP HEADLINES
Beijing Launches New Measures to Boost Private Investment
China's top economic planner released a set of new policy guidelines on Monday to support private investment, as part of a drive to rekindle entrepreneurial spirit amid faltering growth.
Beijing will look to revitalize private investment and encourage private capital to participate in major national projects, the National Development and Reform Commission said in an official notice on its website.
The Inflation Giant Has Awakened. Why Price Growth Will Persist
No matter which inflation gauge you use, U.S. price growth has decelerated sharply in the past year. Yet, now that the Federal Reserve has managed to bring inflation closer to its 2% target, it could be a mistake to think it will stay low.
To the contrary, inflation is likely to be a more persistent threat than it has been in decades, owing to the long list of powerful forces that have driven prices higher, and the limits of central-bank efforts to control it. History also suggests that price volatility is less the exception than the norm.
Stocks are making a run for record territory. Will the Fed end its rate hikes anyway?
Stocks have been closing in on record territory, which isn't supposed to be a key worry of the Federal Reserve.
But after a dizzying three years of pandemic extremes, the stock rally has become a source of market angst, right as the Fed attempts a final chapter in its epic rate hiking saga.
Chinese Money Flees the Western World
Just a few years ago, Chinese money was rippling across the rich world. Chinese investors were making blockbuster deals and snapping up trophy assets, from luxury homes and five-star hotels in New York to a Swiss chemical company and a German robotics giant.
That era is over.
Hedge Funds Brawl Over Battered Commercial Real Estate
Big fund managers that specialize in distressed investing have eagerly watched the yearlong selloff in commercial real estate. Now, they are snapping up battered shares of real-estate investment trusts, historically the province of mom-and-pop investors.
The influx of these funds is lifting prices, benefiting individual investors who held on. It is also sparking conflict as hedge funds bid against one another for shares and butt heads with management teams.
Russia Defies Sanctions by Selling Oil Above Price Cap
Russia notched a victory in the fight for influence over global oil markets in recent days when the price of the country's most coveted crude traded above a Western price cap imposed to starve Moscow of funds for the war in Ukraine.
It is the first time that the price for its flagship Urals grade of oil has breached the $60-a-barrel limit since the U.S. and its allies introduced the novel sanctions policy last December, according to commodities-data firm Argus Media. It is a sign that the Kremlin has succeeded, at least in part, in adjusting to the restrictions.
Israel's Netanyahu Proceeds With Vote on Judicial Overhaul as Protests Intensify
TEL AVIV-Israel's parliament on Sunday pushed ahead with plans to vote on the first part of a judicial overhaul that has sharply divided the country, as mass protests intensify and thousands of military reservists say they will refuse to report for duty.
(MORE TO FOLLOW) Dow Jones Newswires
07-24-23 0016ET
