MARKET WRAPS
Stocks:
European stocks fell Friday as investors took a risk-off stance
across global equity markets.
The monthslong rally in U.S. stocks has grown fragile in recent
weeks on signs that the pace of economic growth may be slowing and
snarls in the global supply chain for goods are persisting.
Lingering concerns over China's clampdown on its internet and
technology businesses as well as lofty expectations for corporate
earnings has weighed on sentiment this week.
"There are so many crosscurrents going on at the moment
influencing markets," said Sebastian Mackay, a multiasset fund
manager at Invesco. "We've entered a more volatile period for
markets, but markets will continue to move higher because we're
still seeing economic growth."
The selloff this week in Hong Kong due to the recent regulatory
crackdown in China also continued, with the city's Hang Seng Index
declining almost 1.4% by the close on Friday. The index has shed
9.9% in July, its biggest monthly drop since October 2018.
Meanwhile, Eurozone gross domestic product grew 2.0% over the
previous quarter in 2Q. The eurozone's economic recovery firmed up
in the second quarter, as the gradual lifting of Covid-19
restrictions allowed some activity to spring back, said Tej Parikh,
director of the economics team at Fitch Ratings. Both consumer and
business confidence are booming across the region, Parikh
noted.
"The reopening of non-essential shops has seen retail sales leap
back toward pre-pandemic levels, while there are signs that firms'
investment plans are rising, which bodes well for continued
growth," he said. The momentum from economies reopening should
carry into 3Q, but a rise in cases of the Delta variant across the
eurozone may pose a downside risk, Parikh said.
U.S. Markets:
Stock futures fell, suggesting that the S&P 500 may end the
week on the back foot on its way to close out its sixth straight
month of gains.
Amazon.com shares fell over 6% premarket after the giant
retailer reported second-quarter sales that were slightly below
analysts' expectations, and signaled that it expects sales to slow
further in the current quarter. The results highlighted the
challenge of sustaining the unfettered growth it has logged during
the pandemic.
Ahead of the market opening, other giant growth stocks including
Facebook and Tesla slid more than 1% apiece. Apple, Microsoft and
Alphabet edged down by less than 1%. The tech sector makes up a big
component of U.S. markets, and a decline in those stocks can weigh
on the S&P 500 index.
Another batch of blue-chip corporate earnings are set to be
released before markets open, with Caterpillar, Procter &
Gamble, Exxon Mobil and Chevron slated to report.
The Commerce Department is also set to release data on June
consumer spending and inflation at 8:30 a.m. ET. Investors and
central bankers have closely monitored inflation reports and
indicators as they assess whether price increases will persist for
a prolonged period.
Forex:
The dollar is likely to recover after falling on profit taking
following the Federal Reserve's policy announcement on Wednesday,
ING said.
The Fed's extra "hawkishness" in signalling that it is moving
closer towards tapering asset purchases was largely in the dollar's
price and may have prompted some profit taking, ING analysts said.
"We wouldn't read too much into the recent USD correction or
conclude this is a sign that the greenback's momentum may have
peaked already."
The global recovery looks "mixed at best" and China-related
sentiment remains volatile due to fears of more regulatory
clampdowns, which could boost safe haven flows into the dollar, the
analysts said.
Speculators appear to be rebuilding bets on a stronger sterling
ahead of the Bank of England's next policy meeting on August 5, ING
says.
The pound has recently been buoyed by a fall in U.K. coronavirus
cases and is set to end the week as one of the best performing G10
currencies, ING analysts said, noting that GBP/USD has risen about
1.7% since last Friday.
"At the same time...GBP/USD appears to be mostly a function of
the dollar's moves: if it looks too early to see a break above
1.1900 in EUR/USD, it equally looks early to see any move above
1.4000 in Cable [GBP/USD]."
The euro stayed higher against the dollar after data showed the
eurozone economy grew by more than forecast in the second quarter
and inflation accelerated at a faster-than-expected pace in
July.
Bonds:
U.S. Treasury yields now discount an "unduly pessimistic view"
of the medium- to long-term outlook, Jonas Goltermann, senior
markets economist at Capital Economics, said.
Another shock coming along can't be excluded and worries about
these possibilities explain at least some of the recent drop in
bond yields, he said.
"But absent those risks actually materializing, we continue to
expect that Treasury yields will eventually resume their rise," he
says. CE forecasts the 10-year U.S. Treasury yield to end 2021 at
1.75% and rise to 2.5% by the end of 2023, Goltermann says.
Financial markets are known to overshoot, and as regards
government bond markets, ING is of the view that the move down in
yields has been "a lot more" exaggerated than on the way up.
The Fedand the European Central Bank continue to buy $120
billion and EUR100 billion, respectively, in assets per month, and
in the best of times, this has a distorting effect on rates, said
ING's senior rates strategist Antoine Bouvet. "In illiquid summer
months, these distortions are magnified," he says.
Commodities:
Oil prices were lower, though both benchmarks are on course to
close out the week with gains of 1% and 1.8%, respectively. Those
gains came after upbeat data from the EIA and API earlier in the
week showing tightening inventories in the U.S.
That, plus a weaker dollar--dollar-denominated commodities such
as oil become less expensive for other currency holders when the
dollar drops--are behind oil's gains this week, ING's Warren
Patterson said.
A rise in the dollar is behind Friday's gentle losses, and
Patterson says that given the some weakness in heavier crude
markets, there's little to justify further gains for futures
prices.
Gold was mostly flat alongside expectations that the Fed won't
abandon its accommodative monetary policies anytime soon, Oanda
said, pointing to U.S. economic data that fell short of its
expectations.
"A downside surprise in both GDP and jobless claims justifies
the Fed's dovish stance," it said. "That should provide a
short-term bullish environment for bullion."
Oanda said that if gold can exceed the $1,850/oz resistance
level, technical buying could support a strong rally back toward
the $1,900/oz.
EMEA HEADLINES
Eurozone Economy Showed Stronger-Than-Expected 2Q Rebound
The eurozone economy grew at a faster-than-expected pace in the
second quarter, thanks to the easing of coronavirus restrictions
across the continent.
Across the 19 countries that use the euro as their currency,
gross domestic product grew 2.0% in the second quarter, the
European Union's statistics agency Eurostat said Friday in a first
estimate for the period. Economists polled by The Wall Street
Journal had expected a 1.5% expansion.
German Economy Grew at Slower-Than-Expected Pace in 2Q
Germany's economy grew in the second quarter, according to a
first estimate published Friday by the Federal Statistical Office,
but missed expectations.
Gross domestic product rose by an adjusted 1.5% from the
previous quarter, Destatis said. This expansion was smaller than
economists' expectations of 1.9% growth in The Wall Street
Journal's survey.
BNP Paribas 2Q Profit Rose on Retail Growth, Lower
Provisions
BNP Paribas SA said Friday that second-quarter net profit and
revenue rose as it booked lower provisions and its domestic markets
division rebounded, while it will distribute another dividend.
France's largest listed bank by assets posted net profit for the
period of 2.91 billion euros ($3.45 billion), up from EUR2.30
billion a year earlier and beating expectations of EUR2.46 billion,
according to a consensus provided by FactSet. Revenue edged up 0.9%
to EUR11.78 billion, it said.
UniCredit 2Q Profit, Revenue Beat Estimates
UniCredit SpA posted profit and revenue well ahead of analysts'
estimates for the second quarter, with loan loss provisions down
from the high levels seen last year.
The Italian bank said Friday that net profit surged to 1.03
billion euros ($1.22 billion) from EUR420 million a year earlier,
above analysts' median estimate of EUR720 million based on
company-provided consensus.
IAG to Ramp Up 3Q Capacity But Still Can't Provide Full-Year
Guidance -- Update
International Consolidated Airlines Group SA said Friday that it
was ready to take advantage of a surge in air travel demand in line
with increasing vaccination rates but it remains unable to provide
full-year guidance.
IAG said second-quarter passenger capacity was 22% of the level
in 2019, and had been affected by Covid-19 and government
restrictions and quarantine requirements. It said capacity for the
third quarter will be around 45% of 2019's level, although this
remained uncertain and was subject to a continuing review.
Swiss Re Swung to 1H Profit
Swiss Re AG said Friday that it swung to profit in the first
half and that it expects coronavirus-related losses to diminish in
the coming quarters as vaccination campaigns progress globally.
The Swiss reinsurer posted a net profit of $1.05 billion in the
period, from a net loss of $1.14 billion a year earlier.
NatWest Swung to 2Q Pretax Profit, Resumes Dividend, to Launch
GBP750 Mln Share Buyback -- Update
NatWest Group PLC on Friday reported a swing to a pretax profit
ahead of market views for the second quarter of 2021 and said that
it intends to launch a significant share buyback program after
resuming its dividend.
The FTSE 100 listed bank said it aims to launch a share buyback
program of up to 750 million pounds ($1.05 billion) in the second
half of the year. It said it also intends to close the year with a
full year net release of provisions instead of an impairment
loss.
Bayer Plans for Roundup Litigation Claims Rising by $4.5
Billion
Bayer AG sees expenses from lawsuits accusing its Roundup
weedkiller of causing cancer potentially rising by $4.5
billion-significantly more than it had previously planned for.
The company will set aside the additional funds to cover Roundup
claims in its next quarterly financial report, Bayer executives
said Thursday. The new provisions would raise Bayer's funds
earmarked for the claims to more than $16 billion from the $11.6
billion the company had previously said it would pay to resolve the
cases.
Pearson 1H Pretax Profit Fell; Sees Full-Year on Track
Pearson PLC said Friday that first-half pretax profit fell due
to the sale of its remaining stake in Penguin Random House last
year and restructuring costs, and that it is on track to meet its
expectations for the full year.
The FTSE 100 education company said pretax profit for the first
six months of the year was 4 million pounds ($5.6 million) compared
with GBP35 million for the same period last year.
EU Overtakes U.S. in Covid-19 Vaccines as Delta Variant
Spreads
MILAN-The European Union passed the U.S. in Covid-19
vaccinations, with the continent inoculating people at a sustained
pace and America struggling to persuade vaccine holdouts to get a
shot to slow the spread of the Delta variant.
The EU has given at least one vaccine shot to 259 million
people, or 58.3% of the total population of its 27 member countries
as of Thursday, according to figures compiled by Our World in Data,
an Oxford University project tracking the global vaccine rollout.
The U.S. has reached 56.7% of its population, equivalent to 189
million people.
U.K. Shop Vacancies Rise for Third Consecutive Year
The second quarter marked the third year in a row of increasing
vacancy rates at U.K. shops and this trend is set to continue,
according to the latest report by Local Data Company and the
British Retail Consortium.
Perpetuating a trend started in the first quarter of 2018, the
vacancy rate in the second quarter of 2021 rose to 14.5% from 14.1%
in the first quarter of the year, the report found. This means that
one in seven British shops is unoccupied.
GLOBAL NEWS
Household Spending Likely Rose in June, Before Delta Variant
Upswing
U.S. households likely boosted spending in June, contributing to
robust growth during the second quarter, though the current upswing
in Covid-19 cases related to the Delta variant and higher inflation
are injecting uncertainty into the economic outlook.
Economists estimate that the Commerce Department will report
Friday that personal-consumption expenditures-a measure of
household spending on goods and services-increased 0.7% last month.
That would follow a flat reading in May, when consumers pulled back
on purchases of goods but boosted spending on services.
Big Oil Is Vulnerable to Climate Change. Literally.
Alaska seems like one of the last places on the planet that
could use extra cooling. That is exactly what it will soon need,
though, to prevent one of the world's largest oil pipeline systems
from sinking into melting permafrost.
Recent wildfires, floods and droughts across the world are
bringing the spotlight once again to the contribution that the
oil-and-gas industry has made to climate change. Less talked about
is how exposed the industry is itself to unusual and extreme
weather. It doesn't quite threaten the industry's existence and
could even benefit some producers. Shareholders and consumers could
be left with the tab, though.
U.S. Crypto Traders Evade Offshore Exchange Bans
Americans are circumventing bans intended to stop U.S. customers
from accessing overseas cryptocurrency exchanges, new research
suggests.
A report released Friday found that hundreds of Americans are
trading risky crypto derivatives on offshore exchanges such as FTX
and Binance. The report sheds light on an open secret in the
industry: U.S. crypto enthusiasts can easily bypass measures that
seek to block them from offshore exchanges.
U.S. Import Surge Overwhelms Warehouse Space Near Ports
Surging demand for warehousing close to major ports driven by
the growth of e-commerce and the flood of container imports hitting
U.S. shores is making storage space harder to find and more
expensive, adding new stresses to already strained supply
chains.
Logistics service providers and real-estate firms say
competition for warehouses close to ports such as those in Southern
California and New York City is intense, pushing up rents and
forcing companies to look to neighboring regions to serve shippers'
needs.
China's Tech Crackdown Could Backfire Badly
In the superhero movie "Avengers: Infinity War," antagonist
Thanos snaps his fingers and half of life in the universe instantly
disappears. After the rout of the past few days, that may sound
horribly familiar to investors in certain Chinese educational and
internet technology stocks.
The big question is what comes next.
Glynn's Take: RBA Will Choose the Path of Least Regret and Delay
QE Taper
SYDNEY-It's been said that conducting monetary policy at the
best of times is like driving at night in torrential rain with a
fogged and cracked windscreen. The headlights are also out and
windshield wipers were an option that you just couldn't afford.
It's like that at the moment for the Reserve Bank of Australia.
A fierce storm has been whipped up by the sudden shutdown of Sydney
due to a significant outbreak of Covid-19 cases. It has regrettably
introduced the city to the highly contagious Delta variant,
bringing with it harsh mobility restrictions, with troops now on
the ground to enforce compliance.
China's Food Market Remains Stable Despite Henan Floods
Widespread flooding in central China's Henan province only had a
partial and short-term impact on the country's food market, China's
Ministry of Agriculture and Rural Affairs said on Friday.
"China's food prices haven't seen significant fluctuations, and
the food market has remained basically stable," said Tang Ke, a
senior official from the ministry, according to state media.
Covid-19 Outbreak During Olympics Leads Japan to Widen State of
Emergency
TOKYO-Japan widened its state of emergency to the entire Tokyo
region and extended it until the end of August in response to a
Covid-19 outbreak that has erupted during the Tokyo Summer
Olympics.
Prime Minister Yoshihide Suga has said there would be no changes
to the Olympics, which run through Aug. 8, and officials said there
wasn't a connection between the start of the Games on July 23 and
the rapid rise in new cases. Nonetheless, the outbreak put a damper
on the nation's mood despite a string of gold medals won by
Japanese athletes.
Hong Kong Protester, First to Be Sentenced Under China's
National Security Law, Gets Nine Years
HONG KONG-The first person convicted under the national-security
law imposed by Beijing was sentenced to nine years in prison
Friday, in a case closely watched as a bellwether for how strictly
Hong Kong judges will enforce the law.
Tong Ying-kit, 24 years old, had been found guilty Tuesday of
inciting secession and committing terrorist activities. During
street protests on July 1 last year-the anniversary of the city's
handover from British to Chinese rule and the day after the law
took effect-he drove a motorcycle that collided with police
officers. He was carrying a flag bearing the popular protest slogan
"Liberate Hong Kong, Revolution of Our Times," which the local
government later declared has forbidden pro-independence
connotations.
EU Overtakes U.S. in Covid-19 Vaccines as Delta Variant
Spreads
MILAN-The European Union passed the U.S. in Covid-19
vaccinations, with the continent inoculating people at a sustained
pace and America struggling to persuade vaccine holdouts to get a
shot to slow the spread of the Delta variant.
The EU has given at least one vaccine shot to 259 million
people, or 58.3% of the total population of its 27 member countries
as of Thursday, according to figures compiled by Our World in Data,
an Oxford University project tracking the global vaccine rollout.
The U.S. has reached 56.7% of its population, equivalent to 189
million people.
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(END) Dow Jones Newswires
July 30, 2021 06:15 ET (10:15 GMT)
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