MARKET WRAPS
Watch For:
Eurozone Flash Consumer Confidence Indicator; U.K. Public Sector
Finances, CBI Industrial Trends Survey; Italy Industrial
Turnover/Orders; updates from Vivendi, ING, Coca-Cola HBC, DS
Smith, Telenor
Opening Call:
Wall Street's rebound and calming words from Jerome Powell
should ensure Europe opens higher on Tuesday. In Asia, stocks
climbed, the dollar and Treasury yields were little changed, while
commodities were mixed.
Equities:
European shares should extend gains on Tuesday, buoyed by Wall
Street's rally and reassuring comments on the U.S. economy from
Jerome Powell.
The Dow surged nearly 590 points on Monday, booking its best day
since March, as stocks rebounded after their worst week since
October. Investors focused on strengths in the U.S. economy heading
into the summer months, as domestic Covid restrictions fade.
"There was a bit of a selloff last week, with concerns about
potentially higher interest rates and a more aggressive Fed," said
John Carey, director of equity income at Amundi U.S. "It seems that
maybe was overdone."
Carey said "people remain optimistic about the economy" in the
U.S. as more households emerge from lockdowns, despite lingering
concerns about the global pace of vaccinations and as 30 U.S.
states looked poised to fall short of the Biden administration's
July 4 vaccination goals.
Meantime, Jerome Powell said Monday that job growth should pick
up in coming months and temporary inflation pressures should ease
as the economy continues to recover from the effects of the
pandemic.
"The economy has shown sustained improvement," Mr. Powell said
in testimony prepared for delivery Tuesday on Capitol Hill, noting
progress on vaccinations and vast stimulus efforts by Congress and
the Fed.
Mr. Powell is set to appear before the House Subcommittee on the
Coronavirus Crisis to discuss the Fed's efforts to shore up the
economy since the start of the pandemic. He also is likely to field
questions on the Fed's monetary policies, which aim to support the
economic recovery.
Forex:
The dollar was steady in Asia, buoyed by Jerome Powell's
comments.
JPMorgan said the Fed's hawkish pivot is a bullish watershed for
the dollar after an indecisive first-half.
"The Fed has removed the assurance of multi-year policy inaction
that has been pivotal to the market's dollar-bearish conviction
ever since the switch to average inflation targeting....The shift
in the Fed's reaction function is most clearly bullish for the
dollar vs. low-yielding reserve FX, whose monetary policy is firmly
anchored by historically weak inflation."
Meantime, Goldman Sachs said the Fed's latest dot plot was a
meaningful surprise. In a scenario where markets continue to move
Fed pricing in a hawkish direction, the bank could envision
five-year overnight index swap rates reaching 1% from 0.75%
currently, and EUR/USD falling roughly another 2% if European rates
remain about unchanged.
"That being said, we do not think this is the start of a
sustained Dollar rally. Our own Fed forecasts remain dovish
relative to market pricing," said Zach Pandl, adding that many
other countries are seeing activity rebound from depressed levels,
and other central banks will need to consider policy normalization
over time. He still sees dollar depreciation over the
medium-term.
Bonds:
Long-dated Treasury yields continued to stage solid post-Fed
climbs in Asia, after a volatile New York session. Strategists
didn't offer a clear reason why yields turned lower and then popped
up on Monday, but some attributed it to bearish positioning, with
investors forced to unwind bets that prices would head lower,
pushing yields higher.
Inflation-themed "trades such as a bear-steepening of the curve
and a weaker dollar depend on the Fed remaining dovish, with the
implication that a hawkish Fed would move markets in reverse,"
wrote Alex Pelle and Steven Ricchiuto, U.S. economists at
Mizuho.
"Our view is that Powell remains solidly on the dovish end of
the FOMC, but he is a Chair trying to manage an increasingly
factious committee as incoming inflation data surprises to the
upside."
Oxford Economics said the Fed's massive footprint in the
Treasury market is not likely to wane even when it starts paring
back on asset buying at some point in the future. The firm noted
that in the first quarter the Fed owned 24.7% of the outstanding
Treasury market, a slight decline from 25.1% in the final three
months of 2020. "That share is likely to remain near 25% until well
after the Fed begins tapering purchases."
Oxford also said foreign investors are still a bigger player in
the Treasury market relative to the Fed.
The yield on 10-year U.K. benchmark government bonds is likely
to trade in a narrow range, barring a renewed selloff in Treasurys
and fresh inflation concerns, said Althea Spinozzi, Saxo Bank's
fixed income strategist.
"[10-year] gilt yields will continue to trade rangebound between
0.70% to 0.85%," she said. "If U.S. long-term yields resume to rise
and inflationary pressures continue to grow, we can expect gilt
yields to increase fast to 1%."
Energy:
Oil prices were mixed in Asia, after they rallied on Monday to
their highest finish since 2018, thanks to a weaker dollar and
improved risk appetite and as traders monitored developments in
Iran.
CBA said crude is likely to remain resilient as additional
Iranian supply may take longer to materialize, after a sixth round
of talks to revive a nuclear deal with Iran ended without an
agreement.
Oil's relentless rise has continued with "positive news in all
directions," said Manish Raj, chief financial officer at Velandera
Energy.
"Continued economic recovery after the pandemic and robust
demand growth have resulted in a tight physical market," he told
MarketWatch. The recent Iranian election results, meanwhile,
"indicate that a nuclear deal with Iran, and hence Iranian supply
growth, remain elusive."
Metals:
Gold futures were higher, extending Monday's modest gains, with
investors likely to focus on Jerome Powell's testimony, said OCBC.
It expects gold to trade within a broad range of $1,750-$1,850 for
now.
Base metals were little changed, regaining a more stable footing
after last week's selloff. Recently, the three-month LME copper
contract was flat at $9,182.00 a ton, while aluminum was 0.2%
higher at $2,408.50 a ton.
A weaker greenback on Monday helped support the belief that a
global economic recovery won't be derailed even if monetary policy
is tightened, improving investor appetite for risky assets such as
base metals, said ANZ. Demand for copper appears strong, it added,
citing a 4.5% fall in inventories of the red metal held in LME
warehouses, the biggest drawdown since January.
TODAY'S TOP HEADLINES
Economy Is Showing Sustained Progress, Powell Says
WASHINGTON-Federal Reserve Chairman Jerome Powell said Monday
that job growth should pick up in coming months and temporary
inflation pressures should ease as the economy continues to recover
from the effects of the pandemic.
"The economy has shown sustained improvement," Mr. Powell said
in testimony prepared for delivery Tuesday on Capitol Hill, noting
progress on vaccinations and vast stimulus efforts by Congress and
the Fed.
Fed's Williams Not Ready to Pare Aid, but Other Officials Talk
Tapering
Federal Reserve Bank of New York leader John Williams said he
isn't ready for the U.S. central bank to dial back the support it
is giving the economy amid uncertainty about the recovery from the
pandemic.
"It's clear that the economy is improving at a rapid rate, and
the medium-term outlook is very good," Mr. Williams said in a
virtual appearance Monday. "But the data and conditions have not
progressed enough for the [Federal Open Market Committee] to shift
its monetary policy stance of strong support for the economic
recovery," he said.
Bitcoin Price Extends Drop After China Intensifies Crypto
Crackdown
The price of bitcoin and other cryptocurrencies slid Monday
after China's central bank ordered the country's largest banks and
payment processors to take a more active role in curbing
cryptocurrency trading and related activities.
The People's Bank of China on Monday said it summoned
representatives of multiple institutions-including state-owned
commercial banks and Ant Group Co.'s Alipay-and told them to
"strictly implement" recent notices and guidelines from authorities
on curbing risks tied to bitcoin and cryptocurrency fundraising
activities. It was the latest sign that Beijing is intensifying its
crackdown on unregulated virtual currencies.
Long-Dated Treasurys Win Favor on Receding Inflation Bets
Investors have rushed into longer-dated Treasurys in a bet that
the Federal Reserve will act more quickly against inflation,
leading to slower growth and lower interest rates in the longer
term.
Yields on shorter-dated bonds have risen and their prices fallen
in recent days, reflecting higher rate expectations after the Fed's
policy meeting last week. Meanwhile, longer-dated yields dropped
because higher interest rates in the near term would likely mean
slower growth and lower interest rates further into the future.
These shifts, which reversed course slightly during Monday's
trading, produce what is known as the flattening of the yield
curve.
Chinese Port Logjam Threatens Christmas Shipping Rush
The latest obstacle hitting global shipping is likely to jolt
trade flows for several more weeks and could delay shipments
heading into the year-end holiday shopping season.
Shipping executives say around 50 container ships remain backed
up around the Yantian port in Southern China and that some 350,000
loaded containers are stacked up on docks as the major gateway for
China goods heading to Western nations struggles to recover from a
Covid-19 outbreak that disrupted operations there.
Write to paul.larkins@dowjones.com
Expected Major Events for Tuesday
04:30/NED: Jun Consumer confidence survey
04:30/NED: Apr Consumer Spending
05:00/FIN: May Labour force survey, incl unemployment
06:00/UK: May Public sector finances
06:00/DEN: Jun Consumer expectations
07:00/SPN: Apr Industrial Orders & Turnover
07:00/SWI: 1Q Balance of Payments
07:30/SWE: May Labour Force Survey
08:00/ITA: Apr Industrial turnover & orders
08:00/ICE: May Harmonized CPI
08:00/POL: May Retail Sales
10:00/UK: Jun CBI Industrial Trends Survey
10:00/IRL: May WPI
12:00/HUN: Jun Hungarian interest rate decision
14:00/EU: Jun FCCI Flash Consumer Confidence Indicator
14:00/DEN: May Central Government Finance & Debt
15:59/UKR: 1Q GDP
17:59/POR: Apr Balance of Payments
23:01/UK: Jun REC JobsOutlook survey
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(END) Dow Jones Newswires
June 22, 2021 00:30 ET (04:30 GMT)
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