MARKET WRAPS

Stocks:

European stocks fell Monday after markets in China and Hong Kong plummeted.

The major markets action on Monday was tied to China, as the Hang Seng skidded over 4%, following a crackdown both on Tencent's music licensing and the entire tutoring industry. In premarket trade, Tencent Music Entertainment shares dropped 14% after China ordered the company to end exclusive contracts with music copyright holders.

Hong Kong-listed education stocks skidded after educational training institutions were banned from raising money in the stock market and foreign capital cannot invest. The crackdown slammed U.S.-listed Chinese education stocks on Friday.

The crackdown came as China blamed the U.S. for a stalemate in bilateral relations as high-level talks began in the Chinese city of Tianjin.

Rising concerns over the Delta variant of Covid-19 and concerns over economic growth are also likely to challenge the pace at which the U.S. stock market will rise in the coming weeks, investors said. Money managers are also awaiting guidance from the Federal Reserve this week, including policy makers' outlook on inflation and any clues on when the central bank may start scaling back its bond purchase program.

"This will be a choppy environment for the rest of the year as markets deal with growth that isn't as strong, and markets turn to the potential withdrawal of policy support," said Hugh Gimber, a strategist at J.P. Morgan Asset Management. "You would expect that the spread of the Delta variant would put restrictions in place longer and some supply bottlenecks may not last just a few months."

Among individual equities, shares in Dutch internet conglomerate Prosus, a major investor in Tencent, fell over 9% in Amsterdam.

U.S. Markets:

Stock futures dropped, suggesting that the major stock indexes will retreat from last week's all-time highs after markets in China and Hong Kong plummeted.

Futures linked to the Dow Jones Industrial Average retreated. the blue chip index on Friday crossed the 35000 closing milestone for the first time in its history after climbing over 1% last week.

Investors are awaiting earnings from a bevy of American companies including giant technology companies this week that will indicate how large businesses are weathering the pandemic and a recent uptick in inflation. Lockheed Martin is slated to post earnings before the market opens, and electric-car maker Tesla is due to report after the closing bell.

"This week is really where we enter crunchtime for earnings," Mr. Gimber said. "With tech names reporting, the bar is high."

Forex:

The dollar could rise if the Federal Reserve signals that its bond buying program won't continue for much longer in a policy decision Wednesday, Commerzbank said.

The Fed could imply this by changing its statement to say that it would continue buying bonds "until further progress has been made" from the current "until substantial progress has been made," Commerzbank currency analyst Ulrich Leuchtmann said.

While the bond-buying program is "pretty irrelevant" for the foreign exchange market, a change in wording would suggest the Fed, unlike the European Central Bank, is "willing to take restrictive steps again," he said.

Cryptocurrencies jumped Monday, with bitcoin rising more than 18% from its 5 p.m. ET level Friday. Investors pointed to short positions being liquidated and speculation that Amazon.com may be venturing into digital currencies. The price of bitcoin rose to as much as $39,544.29, its highest level since mid June, according to CoinDesk.

EUR/USD, last steady at 1.1773, is likely to "stay sluggish" but stuck within a tight range as both the euro and the dollar are held back, said UniCredit.

Lower U.S. Treasury yields have been "a drag" on the dollar in recent weeks, but lower German bond yields following last week's hints of prolonged stimulus from the European Central Bank aren't helping the euro either, the bank said.

Softer U.S. new homes sales, due later Monday, would likely have a "negligible impact" on the dollar, UniCredit said.

The ongoing clash between the U.K. and EU over post-Brexit trading arrangements for Northern Ireland is likely to limit any sterling gains this week in the absence of market-moving economic data, ING said.

"It appears very little downside risks related to this topic are priced into GBP, and a combination with a USD-positive Fed meeting could make cable [GBP/USD] re-test the 1.3600 support this week."

Bonds:

Morgan Stanley keeps short U.S. Treasuries, seeing the fair value of 10-year U.S. Treasury yields at around 1.60% in the current environment, said strategist Guneet Dhingra.

In assessing the fair value, Morgan Stanley makes assumptions about where it thinks the market can price in the timing of the first rate hike by the Federal Reserve and the subsequent pace.

Taking a conservative approach, Morgan Stanley thinks the market can price the first hike in the first or second quarter of 2023, Dhingra said.

German Bunds are expected to outperform U.S. Treasuries due to the diverging monetary policies of the European Central Bank and the Fed, said Morgan Stanley.

"We think that the increasingly divergent reaction functions between the Fed and the ECB will likely favour Bund outperformance versus USTs over the near term," said strategists Alina Zaytseva and Lorenzo Testa.

They see the risks for the July FOMC meeting as skewed toward an upbeat and hawkish message, while the ECB's position is dovish. The 10-year UST-Bund spread is 168 basis points, according to Tradeweb.

Morgan Stanley thinks a reversal to above 200 basis points may not be attainable in the short run, though.

Commodities:

Oil prices fell, continuing the volatility the market has experienced in recent weeks.

Investors are increasingly worried about rising coronavirus case numbers in several major Asian economies and "any significant reversal of easing in restrictions in parts of Europe and the U.S. would send a fairly bearish signal to the market, particularly when you consider the higher vaccination rates in those regions," said ING's Warren Patterson.

In addition, traders reduced their net bets on rising Brent and WTI prices last week to their lowest since May and November respectively

Base metal prices slipped as China's crackdown on the equity market prompts inventors to flee from risk assets.

Three-month copper on the LME was down 0.6% at $9,571.50 a metric ton, while aluminum fell 1% to $2,483.50 a ton and nickel edged down 0.2% to $19,440 a ton.

EMEA HEADLINES

German Business Sentiment Falls in July

German business sentiment worsened in July amid an increase in coronavirus infections and supply woes, missing forecasts for an increase.

The Ifo business-climate index came in at 100.8 points in July compared with the 101.7 points registered in June, according to data from the Ifo Institute released Monday. The reading missed a forecast from economists polled by The Wall Street Journal, who expected the index to increase to 102.5.

Talking Markets: Delta Variant Stunts European Households' Confidence

Consumer confidence in Europe is wobbling amid the spread of the more infectious Covid-19 Delta variant, denting the region's prospects of a strong, consumer-led recovery this summer.

The eurozone's consumer confidence indicator fell in July following five consecutive months of gains, preliminary data from Eurostat showed Thursday. The last decline was registered in January amid a sharp rise in Covid-19 cases. The U.K.'s consumer barometer, compiled by research firm GfK, increased in July, but showed that Britons' expectations about the economy's short-term performance are worsening.

Ryanair Sees a Further Drop in Fares to Counteract 'Pingdemic,' Travel Uncertainty

Ryanair Holdings PLC said Monday that it expects the U.K.'s current "pingdemic" to lead to more uncertainty and that it will counteract this with more price stimulation and lower fares in the near term.

The "pingdemic" refers to people being notified by the U.K. National Health Service's Covid-19 app that they need to self-isolate for a set amount of time after it registers users have been in close contact with someone who has tested positive for the coronavirus.

Philips Launches EUR1.5B Share-Buyback Program; 2Q Profit Hit by Provision

Koninklijke Philips NV on Monday launched a 1.5 billion euro ($1.77 billion) share buyback as it reported a fall in second-quarter net profit after booking a provision against a faulty component used in some sleep and respiratory-care products, as previously flagged.

The Dutch health-technology company backed its full-year guidance. It expects to deliver low-to-mid-single-digits comparable sales growth for 2021. The company also said it expects to report adjusted earnings before interest, taxes and amortization margin improvement of 60 to 80 basis points.

Credit Suisse Settles Spying Case With Ex-Executive Iqbal Khan

Credit Suisse Group AG said it reached a settlement with a former executive and private investigators over a spying scandal that rocked the bank.

In fall 2019, the Swiss bank hired investigators to spy on Iqbal Khan, a top wealth-management executive who was leaving to join rival UBS Group AG. Mr. Khan spotted one of the investigators and went to the police, setting off international headlines and leading to the ouster of the bank's chief executive over the reputational fallout.

The Delta Variant Upends the World's Pandemic Response

The Delta variant is changing calculations of governments around the world, raising doubts about how quickly they can leave the coronavirus pandemic behind, widening the gulf between highly vaccinated places and the rest, and infiltrating countries that had previously kept the virus at bay.

The variant's ability to spread more easily than previous dominant versions of the virus has driven rapidly rising Covid-19 caseloads even in highly vaccinated countries such as the U.K. and Israel. There, the vaccines have suppressed serious illness and deaths. But, in many parts of the rest of the world, the pandemic that has already sickened at least 200 million people and killed more than four million is intensifying.

Private-Equity Firms Spark Bidding Wars in U.K.

Blackstone Group Inc., Carlyle Group Inc. and other buyout firms are bidding for U.K. publicly listed companies at a faster rate than they have in years. The reason: Post-Brexit Britain is one of the few markets where investors think big assets are going for cheap.

Covid-19 Pill Race Heats Up as Japanese Firm Vies With Pfizer, Merck

A Japanese company has started human trials of the first once-a-day pill for Covid-19 patients, joining Pfizer Inc. and Merck & Co. in the race to find treatments for the disease.

Osaka-based Shionogi & Co., which helped develop the blockbuster cholesterol drug Crestor, said it designed its pill to attack the Covid-19 virus. It said the once-a-day dosing would be more convenient. The company said it is testing the drug and any side effects in trials that began this month and are likely to continue until next year.

Covid-19 Vaccine Holdouts Face Restrictions in Europe as Delta Variant Spreads

European governments worried about the rapid spread of the Delta coronavirus variant are nudging, and in some cases pushing, people to get a shot by introducing restrictions to daily life for those without a Covid-19 vaccination.

In most cases, vaccination still isn't obligatory, with a few exceptions such as healthcare workers in Italy. Yet by closing off the unvaccinated from aspects of daily life such as indoor dining at restaurants or going to the gym, governments are looking to make life more difficult for people holding out against getting vaccinated.

GLOBAL NEWS

A Key Gauge of Future Inflation Is Easing

One of the most important signals of future inflation has begun to ease in the past month, a development that should reassure the Federal Reserve in its prediction that the recent inflation surge will prove largely temporary.

Hot Used-Car Market Boosts Auto Lenders and Borrowers

Red-hot demand for used cars is turning the auto-lending world upside down.

Prices are so high that some lenders are coming out ahead on defaulted auto debt. And far fewer borrowers are underwater on their car loans, meaning they don't owe more than the car is worth when they trade it in. It is a tricky time to buy a car, but a pretty good time to owe money on one.

Bitcoin Jumps 20% to a Six-Week High

The price of bitcoin jumped to a six-week high on Monday, with some investors attributing the rally to short positions being liquidated and speculation that Amazon.com Inc. may be venturing into digital currencies.

Bitcoin soared to $39,112.05, up more than 20% from its 5 p.m. EDT level Friday, according to CoinDesk, reaching its highest level since mid-June. Ether, its rival currency, jumped more than 16%.

Senators Try to Finalize Deal on Infrastructure Package

WASHINGTON-Lawmakers pushed to finalize an infrastructure agreement Sunday, but said they were still struggling to resolve a dispute over how much to increase public-transit funding, a snag that could delay their goal of advancing the bill in a Senate vote early this week.

GOP senators had blocked efforts by Democrats to begin consideration of the roughly $1 trillion infrastructure bill on Wednesday, saying too much of the package remained unresolved. Lawmakers in a bipartisan group crafting the legislation said late last week that they hoped to finish in time to reverse that outcome in a second vote in the next few days.

U.S. Set to Push Global Economy Over the Recovery Line

The U.S. economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.

Economists surveyed by The Wall Street Journal estimate that figures to be released Thursday will show that the U.S. gross domestic product rose at an 8.5% seasonally adjusted annual rate in the second quarter. That likely left U.S. GDP-the value of all goods and services produced across the economy, adjusted for seasonality and inflation-above the $19.2 trillion level reached in the final quarter of 2019, the last before the spread of Covid-19 pushed large parts of the global economy to shut down and contract, they say.

What's Holding Back China's Recovery? The Kids Aren't Alright

What is holding back China's economic recovery, particularly in services and consumption?

China's Digital Yuan Puts Ant and Tencent in an Awkward Spot

HONG KONG-China is calling on private-sector pioneers Ant Group Co. and Tencent Holdings Ltd. to help it develop a state-backed digital currency that threatens the pair's highly popular payment networks.

The People's Bank of China in recent months has accelerated the testing of its digital yuan, putting the operators of Alipay and WeChat Pay in a difficult spot: They have little choice but to take part, despite the risk of eroding the huge user bases they have grown over years. Most of China's 1.4 billion people use at least one of the private services to make mobile payments.

Investors Are Buying American

Investors around the globe are pouring money into U.S. financial assets, a sign of confidence that the world's largest economy remains poised to pull through the Covid-19 pandemic better than many others.

Talking Markets: Delta Variant Stunts European Households' Confidence

Consumer confidence in Europe is wobbling amid the spread of the more infectious Covid-19 Delta variant, denting the region's prospects of a strong, consumer-led recovery this summer.

The eurozone's consumer confidence indicator fell in July following five consecutive months of gains, preliminary data from Eurostat showed Thursday. The last decline was registered in January amid a sharp rise in Covid-19 cases. The U.K.'s consumer barometer, compiled by research firm GfK, increased in July, but showed that Britons' expectations about the economy's short-term performance are worsening.

Senators Try to Finalize Deal on Infrastructure Package

WASHINGTON-Lawmakers pushed to finalize an infrastructure agreement Sunday, but said they were still struggling to resolve a dispute over how much to increase public-transit funding, a snag that could delay their goal of advancing the bill in a Senate vote early this week.

GOP senators had blocked efforts by Democrats to begin consideration of the roughly $1 trillion infrastructure bill on Wednesday, saying too much of the package remained unresolved. Lawmakers in a bipartisan group crafting the legislation said late last week that they hoped to finish in time to reverse that outcome in a second vote in the next few days.

U.S. Set to Push Global Economy Over the Recovery Line

The U.S. economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.

Economists surveyed by The Wall Street Journal estimate that figures to be released Thursday will show that the U.S. gross domestic product rose at an 8.5% seasonally adjusted annual rate in the second quarter. That likely left U.S. GDP-the value of all goods and services produced across the economy, adjusted for seasonality and inflation-above the $19.2 trillion level reached in the final quarter of 2019, the last before the spread of Covid-19 pushed large parts of the global economy to shut down and contract, they say.

What's Holding Back China's Recovery? The Kids Aren't Alright

What is holding back China's economic recovery, particularly in services and consumption?

China's Digital Yuan Puts Ant and Tencent in an Awkward Spot

HONG KONG-China is calling on private-sector pioneers Ant Group Co. and Tencent Holdings Ltd. to help it develop a state-backed digital currency that threatens the pair's highly popular payment networks.

The People's Bank of China in recent months has accelerated the testing of its digital yuan, putting the operators of Alipay and WeChat Pay in a difficult spot: They have little choice but to take part, despite the risk of eroding the huge user bases they have grown over years. Most of China's 1.4 billion people use at least one of the private services to make mobile payments.

Investors Are Buying American

Investors around the globe are pouring money into U.S. financial assets, a sign of confidence that the world's largest economy remains poised to pull through the Covid-19 pandemic better than many others.

U.S. Intensifies Airstrikes in Afghanistan as Taliban Offensive Nears Kandahar

The U.S. has stepped up airstrikes in southern Afghanistan amid growing apprehension over a Taliban offensive threatening Kandahar, the country's second-largest city and spiritual capital of the Taliban movement.

The fall of Kandahar would deal a heavy blow to the U.S.-backed government in Kabul, which is trying to impart calm to its citizens as the Taliban has seized swaths of the countryside, but so far failed to take a major city.

Write to sarka.halas@wsj.com

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

July 26, 2021 06:15 ET (10:15 GMT)

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