MARKET WRAPS

Stocks:

European stocks rose Wednesday as investors continue to monitor concern over the fast-spreading delta variant.

The pan-continental Stoxx Europe 600 advanced, extending gains after notching record closing levels for two days in a row. Purchasing managers' surveys showed an expansion in activity in the eurozone's manufacturing and services industries in July, albeit at a slower pace than the previous month.

The euro fell after the IHS Markit eurozone services purchasing managers' index for July was revised lower. The PMI was revised to 59.8 from an initial estimate of 60.4. However, it was higher than June's reading of 58.3 and above the 50 level that separates an expansion from a contraction in sector activity.

Services growth was "slightly less marked" than the earlier estimate due to worries about the spread of the Delta coronavirus variant, Markit economist Chris Williamson said.

Among equities, Commerzbank declined 5% after it swung to a loss in the second quarter. Dutch coffee company JDE Peet's jumped over 5% after its profit more than tripled.

Investors continue to weigh up concerns over the fast-spreading delta variant that has swept across the globe, and is now compelling many U.S. companies to require proof of vaccination as several parts of the country reinstate indoor mask rules. Some are also worried that a wave of delta infections could impact economic recoveries.

Fresh worries have also centered on China, which is testing all 11 million people in the city of Wuhan, the epicenter of the original outbreak a year and a half ago. A cluster of cases has also spread to Beijing, and the country has been imposing a wave of travel restrictions.

U.S. Markets:

Stock futures wobbled ahead of more earnings reports and data on the services sector that would provide fresh insights into the pace of the economic recovery.

Stocks have ground higher this week amid strong earnings reports and signs that the economic rebound remains under way, albeit at a slower pace than in recent months. But the spread of the Delta variant of Covid-19 and a slowdown in the rate of vaccinations is prompting some concern that authorities may reimpose or tighten restrictions on social activity and travel.

"We're entering a stage where growth is still strong, but not as strong as the initial stage of the recovery," said Sebastian Mackay, multiasset fund manager at Invesco. "The implications for markets would be if earnings fail to sustain the very strong performance they have been reporting. Are we entering a stage of the cycle where earnings are still reasonably robust, but the recovery is difficult to sustain?"

A purchasing managers' survey for the U.S. services sector in July is set to be released at 10 a.m. ET. Economists are expecting the data will show an increase as Americans shifted from spending on goods to in-person activities amid vaccinations and relaxed Covid-19 restrictions.

A report from ADP on employment levels in the private sector is also scheduled for 8:15 a.m., acting as a precursor to Friday's highly-anticipated jobs report from the government. Federal Reserve policy makers have said the recovery of the labor market is a key factor in monetary policy decisions.

Drugstore chain CVS Health, food and beverage giant Kraft Heinz, private-equity firm Apollo Global Management and auto maker General Motors are slated to report earnings ahead of the opening bell.

Ride hailing giant Uber Technologies and Costco Wholesale are scheduled to report after markets close.

Forex:

Strong ADP private payrolls data due at 1215 GMT could raise prospects of strong nonfarm payrolls data Friday. If combined with some indication on "the start and end" of tapering of asset purchases in a speech by Federal Reserve Vice Chairman Richard Clarida, this could lift U.S. short rates and the dollar, ING said.

Dollar strength would be mainly against the low-yielding euro and Japanese yen, however, ING said.

ADP private payrolls are forecast to rise by 653,000 in July, according to a WSJ poll of economists.

The European Central Bank's looser-for-longer policy stance has driven the Swiss franc's recent gains against the euro, Commerzbank said.

"After the last ECB meeting, the market is additionally tending towards the assumption that monetary policy in the euro-area will remain expansionary for a long time even after the pandemic, which in turn is weighing on the EUR/CHF rate," Commerzbank's Thu Lan Nguyen said.

That may not be reflected in EUR/USD as the Federal Reserve's strategy also allows for prolonged expansionary policy, she said.

Once the pandemic eases, the safe haven franc's declines versus the euro might be limited, she says.

EUR/CHF rose 0.1% to 1.0736, having reached its lowest level since November at 1.0719 overnight, according to FactSet.

Bonds:

Ten-year U.S. Treasury yields might have more room to fall than their German peers, said ING's rates strategists. The bottom could be 1% for 10-year U.S. Treasury yields, while German Bund yields are probably closer to the bottom, they think.

Rates are on autopilot, trying to find the bottom of this year's trading range, while the main catalyst for a change in the current market dynamics would be bumper U.S. nonfarm payroll data on Friday, said ING's rates strategists.

Danske Bank lowers its forecasts for five-year eurozone government bond yields for the next 12 months because it no longer expects markets to price early interest rate rises by the ECB, said Danske's chief analyst Arne Lohmann Rasmussen.

The lower forecasts for five-year bond yields also feed into Danske's 10-year yield outlook for the eurozone, he said.

Accordingly, Danske expects the 10-year German Bund yields to rise to -0.25% by the end of the year and to 0.1% on a 12-month horizon, compared with the bank's previous forecasts of 0% and 0.3%, respectively.

Commodities:

Oil prices rose after both benchmarks ended Tuesday less than 1% down after at one point losing 3% each.

This week's volatility has come as "worries continue to grow over the spread of the delta variant in China," said ING's Warren Patterson.

With a number of cities now in lockdown and travel restrictions newly imposed, demand worries have weighed on oil prices.

Prices rebounded after suspected Iranian gunmen hijacked a tanker off the coast of the UAE. That follows an attack on an Israeli-operated tanker that the U.S. and U.K. blamed on Iran.

EMEA HEADLINES

Eurozone Retail Sales Recovery Continued in June

Eurozone retail sales grew in June, signaling that the reopening of non-essential shops in several countries is helping to drive the region's economic recovery.

The European Union's statistics agency said Wednesday that the volume of retail sales rose 1.5% in June compared with May, in line with the forecasts of economists polled by The Wall Street Journal.

Commerzbank Swung to 2Q Loss Hit by One-Offs

Commerzbank AG swung to a loss in the second quarter hit by one-off costs such as those related to its restructuring.

The German bank said Wednesday that the net loss for the period was 527 million euros ($625.7 million) compared with a profit of EUR183 million a year earlier.

Hugo Boss Aims to Double Sales by 2025; to Focus on Online, China

Hugo Boss AG aims to sharply increase its revenue within the next five years, with a focus on digital sales and Chinese consumers, the German premium-fashion company said Wednesday.

Setting out its strategy to 2025, Hugo Boss said it is targeting revenue of 4 billion euros ($4.75 billion) by 2025. In 2020, the company made sales of EUR1.95 billion, though this was sharply down from the previous year's figure of EUR2.9 billion. As for profit, the company is aiming for a margin of earnings before interest and taxes of around 12% within the same timeframe.

Facebook Acquisition Review Shows EU's New Antitrust Power

BRUSSELS-Facebook Inc. has hit a new obstacle in Europe in its planned takeover of a small New York-based startup, showing how antitrust muscle-flexing is increasingly affecting deals an ocean away.

With a new interpretation of an old law, European Union competition regulators have given themselves sweeping authority to review merger cases that previously would have escaped their notice, sparking outcry from companies and their lawyers that the change will cause confusion in deal-making.

PAI Makes North American Splash With Pepsi Deal

PAI Partners' roughly $4.5 billion beverage-brand joint venture with PepsiCo Inc. might be the European private-equity firm's first large platform investment in the U.S. market, but it is unlikely to be its last.

"We are excited to bring our consumer and partnership expertise onto this side of the Atlantic," said Maud Brown, a partner who joined the Paris-based firm in 2019 to lead its expansion in North America as head of its New York office. "One of the strengths of the U.S. market is the size."

How Long Can BMW Resist Tesla's Pull?

One of the less discussed ways in which Tesla's Elon Musk has changed the automotive industry concerns financial communication: Underpromising in order to overdeliver is out, advertising expensive growth plans is in.

One car maker that hasn't fallen into line is BMW. The German luxury brand posted strong second-quarter results Tuesday but didn't raise its full-year profit guidance the way most of its peers have. It cited the familiar risks posed for the second half by the semiconductor shortage and inflation in raw-material prices. Its shares fell about 5%.

EU's New Weapon in Rule-of-Law Battle With Poland, Hungary: Money

BRUSSELS-The European Union has begun withholding funds from Poland and Hungary, escalating the battle over democratic standards that is deepening the East-West divide in the bloc.

The EU and most governments in its Western region are concerned about legal changes by Poland and Hungary that they think are eroding the rule of law, weakening judicial independence, and breaching human rights. They are particularly alarmed by an effort by Warsaw to assert the primacy of Polish law over EU law and court decisions.

A Year After Beirut Explosion, Lebanese Are Still Seeking Justice

BEIRUT-Demonstrations against Lebanon's political elite are set to be held on Wednesday as civil-society groups demand justice for the deadly explosion in Beirut a year ago, which they blame on their leaders.

An investigation into the port blast on Aug. 4 last year has so far failed to provide accountability for one of the biggest nonnuclear explosions in history. The explosion killed more than 200 people, injured some 7,000 and devastated some of the Lebanese capital's liveliest residential and commercial areas.

Ship Seized in Gulf of Oman Amid Rising Tensions With Iran Is Let Go

A tanker ship in the Gulf of Oman was seized Tuesday by suspected Iranian gunmen, Western officials said, amid rising regional tensions following a fatal drone attack on another vessel that the U.S. and its allies have blamed on the Islamic Republic.

The tanker was boarded near the port of Fujairah in the United Arab Emirates, according to the U.K. Maritime Trade Operations, which is affiliated with the British Defense Ministry.

Belarusian Activist Vitaly Shyshov's Death Is Investigated in Ukraine as Homicide

MOSCOW-A Belarusian activist who headed a group in Ukraine that helps Belarusians escape repression in their homeland was found dead a day after disappearing near his home in Kyiv, an incident that comes amid an intensifying crackdown on Belarusian activists.

Ukrainian authorities said Tuesday they were investigating the death of Vitaly Shyshov, who was found hanged in a park not far from his residence, as a homicide. All scenarios would be investigated, including the possibility of murder disguised as suicide, police said.

Deutsche Bank Set to Resume Sponsoring Hong Kong IPOs After Filling Staffing Gap

Deutsche Bank AG is set to regain its ability to sponsor Hong Kong initial public offerings, after losing the capability temporarily in June when it failed to line up replacements in time for two departing staffers.

Sponsors take a senior role in an IPO in Hong Kong, conducting due diligence on companies that are preparing to go public and helping guide the companies through the listing process. Banks and brokerage companies that act as sponsors need to have at least two experienced individuals serving as IPO principals who have been approved by the city's Securities and Futures Commission.

GLOBAL NEWS

China Services-Sector Gauge Rebounded in July

A private gauge of China's services sector unexpectedly rebounded in July after slipping to a 14-month low in June, as new orders picked up.

However, China's recent resurgence of Covid-19 cases since late July is set to overshadow its services sector and weaken the economic outlook, as local governments have imposed stringent lockdown and quarantine measures to stop the spread of the virus.

Tencent Selloff Shows Deep Scar Tissue in Chinese Markets

China's recent crackdown on education companies has left scars that could be long in healing.

Putting the fear of God into investors may help Beijing direct capital more easily into areas it prefers, but also risks magnifying volatility and complicating corporate-investment plans, as every regulatory blip is seen as a possible death sentence.

Crypto 'Wild West' Needs Stronger Investor Protection, SEC Chief Says

WASHINGTON-The Securities and Exchange Commission will regulate cryptocurrency markets to the maximum extent possible using its existing authority, Chairman Gary Gensler said Tuesday, while also calling on Congress to grant the agency more scope and resources to oversee the sector.

Calling the asset class rife with "fraud, scams and abuse," Mr. Gensler signaled the SEC is likely to become more active in policing crypto trading and lending platforms, as well as so-called stablecoins.

Australia Faces a Deep Third-Quarter GDP Contraction, RBA Board Member Says

SYDNEY-A deep contraction in Australia's economy in the third quarter looks unavoidable, and significant uncertainty hangs over the fourth quarter due to lengthening lockdowns across major cities, said Ian Harper, dean of Melbourne Business School, and Reserve Bank of Australia board member.

Still, surging vaccination rates offer hope of a rebound in growth that could be more powerful than anything yet seen during the pandemic, he said

Florida Battles Record Covid-19 Hospitalizations, as Delta Variant Surges

Covid-19 hospitalizations in Florida have reached a record high, federal data show, as the state battles a surge in cases brought on by the highly contagious Delta variant.

There were 11,515 confirmed Covid-19 hospitalizations in the state, according to data released Tuesday by the U.S. Department of Health and Human Services.

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(END) Dow Jones Newswires

August 04, 2021 06:01 ET (10:01 GMT)

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