MARKET WRAPS
Watch For:
ECB Interest Rate Decision; France Monthly Business Survey; U.K.
CBI Industrial Trends Survey; updates from Givaudan, Valeo,
Publicis, Dassault Aviation, ABB, Sika, Roche, Air France-KLM, Remy
Cointreau, Vantage Towers, Volkswagen, Sodexo, Unilever, Alliance
Trust, G4S, Centrica, EQT, SSE, Impala Platinum, Babcock
International, Tate & Lyle, Pennon Group, SSE, Halma, 3i Group,
Meggitt, Getlink
Opening Call:
European equities are likely to extend their rebound rally on
Thursday but gains could be capped ahead of the ECB policy
decision. In Asia, stocks, the dollar and Treasury yields advanced,
while oil and metals fell.
Equities:
The rebound in European stocks should continue on Thursday after
Wall Street closed higher for a second day, boosted by some healthy
corporate earnings.
The Dow closed up almost 300 points as investors stuck by the
"buy the dip" mantra after the index on Monday suffered its biggest
one-day drop since October.
"Earnings season is off to a solid start, with results beating
bumper expectations in the second quarter," Craig Erlam, Senior
Market Analyst, at OANDA wrote. "The positivity that's driving the
market is clearly offsetting fears about another [virus] wave for
now, aided no doubt by belief in the vaccine to stop surges turning
into severe lockdowns in most cases."
Forex:
The dollar nudged higher against a basket of currencies and its
recent strength despite lower Treasury yields reflects the fact
that yields have also fallen elsewhere on concerns about the
economic fallout from the Delta coronavirus variant, said Credit
Suisse.
"This dynamic would likely need to persist or even accelerate
for general USD strength to push on materially from here," said
Credit Suisse forex strategists. The dollar's gains in recent days
were typical of what is seen when forex volatility jumps, global
recovery hopes are challenged and commodity prices drop at the same
time, they said.
The euro could fall against the dollar if the European Central
Bank signals it plans to keep monetary policy looser for longer at
Thursday's policy meeting following its recent strategy review,
said ING.
The ECB's decision to raise its inflation target to 2% from
below, but close to 2% implies either a continuation of what the
ECB has done for the past few years or a step towards more
"dovishness," said ING analysts.
"While not a discussion for this week, the ECB dovish bias would
suggest that the total reduction of the monthly [asset] purchases
in 2022 will be less than previously expected." That would
underscore the diverging trend between the ECB and the Federal
Reserve, denting EUR/USD, they said.
Bonds:
U.S. Treasury prices extended their retreat in Asia, with the
10-year note yield recovering most of this week's losses.
Analysts said that worries about the delta variant and its
effect on the global economy may have been overdone, possibly
having caused yields to overshoot to the downside.
Markets have juggled Covid-19 resurgence versus bullish economic
indicators, while an uptick in equities may indicate the Delta
variant is becoming less of a concern. "The dynamics change very
quickly depending on your view and outlook of the global economy,"
said AmeriVet. "The market will continue to offer volatility until
we define the boundaries of a new range."
The ECB is expected to keep its current pace of corporate bond
purchases unchanged after Thursday's rate setting meeting, said
UniCredit.
"For the moment, we continue to expect net corporate bond
purchases of up to EUR8 billion per month within the Corporate
Sector Purchase Program and Pandemic Emergency Purchase Program,"
UniCredit's analysts said. They expect most changes on Thursday to
be made on rates guidance, "where adjustments could theoretically
have implications for Asset Purchase Program purchases and
reinvestment, and thus corporate credit."
Investors will pay attention to how much the ECB plans to take
ecological issues into account in its policy framework, as revealed
in its recently published strategy review, they said.
Energy:
Oil futures slipped in Asian trade after they settled more than
4% higher on Wednesday, boosted by inventory data that showed
supplies at Cushing, Okla., had fallen to the lowest level since
January 2020.
The market is starting to realize that the overall situation is
"still very tight," Phil Flynn, senior market analyst at The Price
Futures Group, told MarketWatch.
"We did see a big surprise surge of imports and that kept the
market somewhat at bay but if you look at the draw in Cushing,
we're getting to a dangerously low level," he said. "We're almost
out of oil at the Cushing delivery point if we continue to draw at
this rate."
Achieving net-zero carbon emissions by 2050 would require
between $92 trillion and $173 trillion in investments in energy
supply and infrastructure, according to BloombergNEF. The research
provider said the annual investment in these areas would need to
more than double, rising from roughly $1.7 trillion a year today to
between $3.1 trillion and $5.8 trillion a year on average over the
next three decades.
"The capital expenditures needed to achieve net zero will create
enormous opportunities for investors, financial institutions and
the private sector, while creating many new jobs in the green
economy," said Jon Moore, CEO of BNEF.
Metals:
Gold edged below $1,800 in Asia, extending Wednesday's losses,
with prices settling at their lowest in nearly two weeks, as
Treasury yields continued to bounce off five-month lows.
"Should prices linger below $1,800 for too long, bears may steal
back control with the next key level of interest found at $1,760,"
Lukman Otunuga, manager, market analysis at FXTM, told MarketWatch.
But if prices can push back above $1,800, "gold has the potential
to retest $1,825, which is just below the 200-day simple moving
average."
Aluminum was little changed, held back by signs that supply
remains abundant. Commerzbank said the 4.5% on-year rise in the
global aluminum supply for June was driven by China's 7.2% growth,
with production for the rest of the world rising 1%.
"The Chinese aluminum market at least still appears amply
supplied given that China exported large quantities of aluminum and
aluminum products in June," it said.
Iron ore prices on the Dalian Commodity Exchange fell 3.9% as
China further cut steel production targets. ANZ noted that steel
companies in the Chinese province of Jiangsu had received guidance
to rein in output for the rest of the year amid rising production
in the first half.
Steel mills in the neighboring province of Anhui had earlier in
the month also received guidance to reduce its steel output for the
rest of the year. This should reduce demand for the steel-making
material.
The metals industry is critical to achieving the bulk of the
decarbonization required by the Paris agreement by 2050 possible,
said Citi in a report. It said that metals will facilitate the
shift to renewable energy, the electrification of transport and
carbon capture and storage development.
Citi estimates that, in an aggressive electrification scenario,
the "incremental ton of metal produced over the next 30 years" will
lower greenhouse-gas emissions by more than 170 tons. Citi said
each of 16 metals--including dirty steel and aluminum--have the
potential to contribute equally to the net reduction in global
emissions.
TODAY'S TOP HEADLINES
Delta Variant of Covid-19 Isn't Expected to Dent Robust U.S.
Recovery
The highly contagious Delta variant of Covid-19 doesn't pose an
immediate risk to the strength of the U.S. economic recovery, with
analysts expecting a robust expansion to continue in the second
half of the year.
Many economists are maintaining forecasts for solid economic
growth due to expectations of steady hiring and continued spending,
driven by accumulated savings and Americans' desire to travel and
socialize more than a year into the pandemic.
Senate Republicans Block Infrastructure Bill but Talks to
Continue
WASHINGTON-Senate Republicans blocked an effort to begin debate
on a bipartisan infrastructure deal still under negotiation
Wednesday, but lawmakers said they expected to close in on a final
agreement by early next week.
The vote failed, with 49 in favor and 51 against, short of the
60 needed to open debate. Senate Majority Leader Chuck Schumer (D.,
N.Y.) switched his vote to no, which he said gave him the option to
bring the bill up again.
Tesla CEO Elon Musk Says He Personally Owns Bitcoin-and So Does
SpaceX
Tesla Inc. Chief Executive Elon Musk said Wednesday that he and
his rocket company, SpaceX, hold bitcoin, a cryptocurrency he
generally supports despite having concerns about its environmental
impacts.
Tesla disclosed a $1.5 billion investment in bitcoin in February
and soon after began accepting the cryptocurrency as payment for
its vehicles. The company quickly reversed course, however,
suspending that initiative in May as Mr. Musk expressed worry about
the source of the electricity being used to power bitcoin
mining.
Bond Rally Undercuts Inflation Fears
The monthslong decline in bond yields exemplifies investors'
belief that inflation likely isn't the biggest problem facing the
U.S. and global economy.
Monday's sharp selloff in major U.S. stock indexes highlighted
investors' mounting concern that the biggest risk to markets right
now is underwhelming growth, rather than the runaway price
increases feared earlier in the year. At the same time, many
investors think inflation readings may run hot for some period,
then subside on their own or lead the Federal Reserve to raise
interest rates and slow the economy.
U.K. Demands EU Renegotiate Brexit Deal's Northern Ireland
Clauses
The U.K. government set the stage for a new clash with the
European Union after Prime Minister Boris Johnson said he wants to
renegotiate the parts of the Brexit agreement dealing with the
politically sensitive question of Northern Ireland.
The government says the agreement, which went into force just
months ago, is hampering trade between Northern Ireland and the
rest of the U.K. The EU on Wednesday ruled out renegotiating the
deal and the Biden administration is closely watching the dispute,
warning against any steps that threaten the Good Friday agreement
that brought peace to Ireland more than two decades ago.
Opening Its Economy as Delta Variant Surges, the U.K. Becomes a
Covid-19 Test Case
LONDON-The battle between vaccines and the Delta variant of
coronavirus is coming to a head in the U.K., closely watched by the
rest of the world. At stake is whether advanced economies with high
vaccination rates can enjoy something approaching pre-pandemic life
in the face of fast transmitting versions of the virus.
The experiment should give a strong signal of whether Covid-19
can be relegated to the status of a manageable, seasonal menace
such as influenza and whether lockdowns and social distancing can
be consigned to the past.
BHP Inks Nickel Supply Deal With Tesla
SYDNEY-BHP Group Ltd. said it has signed a supply deal with
Tesla Inc. for nickel, a commodity used in electric-vehicle
batteries, from its Nickel West operations in western
Australia.
The world's biggest miner by market value said it and Tesla have
also agreed to collaborate on sustainability efforts in the battery
industry supply chain, such as ways to trace raw materials from pit
to product using blockchain.
EU Climate Plan Puts Cost of Sustainable Aircraft Fuel in
Focus
Airlines are calling for more government funding for sustainable
aviation fuels in the wake of proposed European Union measures that
would compel carriers to increase use of the scarce, expensive
fuels.
The climate plan published last week by the European Commision,
the bloc's executive body, included measures aimed at the aviation
sector, which the EU says accounted for 3.8% of its carbon-dioxide
emissions in 2017.
Chips' Biggest Political Pawn Still Has a Strong Game
The extremely expensive nature of chip manufacturing makes
efficiency paramount. But for some producers of chip manufacturing
equipment, inefficiency could become a saving grace.
Consider ASML. The Dutch company's extreme ultraviolet
lithography, or EUV, tools are so key to advanced chipmaking that
semiconductor manufacturers looking to produce cutting-edge
processors for products such as personal computers, smartphones,
data centers and network gear simply can't get by without them.
That also has made ASML into a key weapon in the global
semiconductor Cold War that keeps warming up. The U.S. has leaned
on the Dutch government to prevent those EUV tools from being
shipped to Chinese chip makers.
Write to paul.larkins@dowjones.com
Expected Major Events for Thursday
04:30/NED: Jun Unemployment
04:30/NED: Jul Consumer confidence survey
04:30/NED: May Consumer Spending
06:00/DEN: Jul Consumer expectations
06:00/NOR: 2Q Business tendency survey
06:45/FRA: Jul Monthly business survey (goods-producing
industries)
09:00/MLT: Jun RPI
10:00/IRL: Jun WPI
10:00/UK: Jul CBI Industrial Trends Survey
11:45/EU: ECB interest rate announcement
12:00/POL: Jun Broad money M3
13:00/BEL: Jul Consumer Confidence Survey
14:00/DEN: Jun Central Government Finance & Debt
14:00/EU: Jul FCCI Flash Consumer Confidence Indicator
23:01/UK: Jul UK Consumer Confidence Survey
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(END) Dow Jones Newswires
July 22, 2021 00:16 ET (04:16 GMT)
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