EMEA Morning Briefing: Stocks to Waver as Markets Await Fed

MARKET WRAPS

Watch For:

Germany GfK consumer climate survey; U.K. Nationwide House Price Index; U.S. Advance Economic Indicators Report; U.S. interest rate decision; updates from Banco Santander, Deutsche Bank, BASF, Telefonica Deutschland, Metro, Atos, Prada, Capgemini, Safran, Traton, Total, Babcock, ASM International, Rio Tinto, GlaxoSmithKline, Barclays, British American Tobacco, Smurfit Kappa, Equinor, ITV, Hiscox.

Opening Call:

Stocks could waver around flat at open, Chinese stocks fall again in early Asia trade. Dollar weakens ahead of FOMC meeting. Oil, gold, and copper rise.

Equities:

European stocks are set to waver around flat Wednesday ahead of a busy day in earnings and as markets await the outcome of the U.S. Federal Reserve's two-day meeting later.

Chinese stocks fall in early trade, extending losses into a fourth session, as gains for banks are outweighed by weakening auto shares.

The meltdown in China is weighing on investors' appetite for stocks in other markets, but the contagion effect is likely to be limited, according to Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe.

"The drag on sentiment will be there because China has been the engine of global growth for years now and seeing its stock market suffer like this is going to put a question mark on global growth," Mr. Kassam said. "Anything that weighs on global growth is going to have an effect on markets, but it is going to be a second-order story for global markets."

U.S. stocks slipped from records Tuesday, breaking a five-session winning streak for all three major indexes.

Losses in big tech stocks like Amazon.com and Google parent Alphabet weighed on the market, while shares of airlines and cruise companies also lagged behind.

A powerful rally has sent the S&P 500 up 17% in 2021, while the Nasdaq Composite has gained 14%.

"I wouldn't write this off to anything more than taking a little bit of a breather after the pretty good rally that we saw last week," said Jason Vaillancourt, co-head of global asset allocation at Putnam Investments.

Investors in recent weeks have cheered strong corporate results and upbeat guidance from some of the largest American businesses.

At the same time, they are considering risks posed by the highly transmissible Delta variant of Covid-19, supply-chain problems, a spike in inflation and cooling economic growth.

"We've been characterizing this market as a jetliner that has lifted off and is coming out of the Covid-19 air pocket, but is still trying to find an appropriate cruising altitude," said Kara Murphy, chief investment officer at Kestra Holdings. "We are seeing economic data going from great levels to good levels: that is still indicative of economic growth."

An increase in Covid-19 cases across the U.S. is leading some investors to question whether the economic recovery will be as robust as anticipated. The Centers for Disease Control and Prevention recommended Tuesday that vaccinated people return to wearing masks in public indoor spaces in places with high or substantial transmission of Covid-19.

"Not only the Delta variant but other variants are going to be here," said Loreen Gilbert, chief executive of WealthWise Financial Services. "How are businesses going to adjust, how are individuals going to adjust, as the coronavirus continues on?"

Investors were watching earnings reports after the market close Tuesday from tech behemoths. Microsoft posted another quarter of record sales, while Alphabet reported a surge in revenue powered by thriving sales from advertising. Apple posted a record spring-quarter profit as customers embraced new iPhones and other devices.

In corporate news, BHP's unexpected takeover offer for Noront Resources reflects BHP's desire to increase output of commodities used in batteries, said Macquarie.

"The move to acquire Noront Resources is a surprise, although at just C$325 million, accounts for circa 0.1% of BHP's market capitalization," Macquarie said.

Noront owns the Eagle's Nest nickel, copper and platinum group metals project, as well as other exploration assets. BHP's only nickel exposure is its Nickel West operation in Australia.

"Given the comparatively small scale of Eagle's Nest, we suspect BHP's acquisition is more focused on Noront's substantial exploration tenement portfolio in the Ring of Fire," Macquarie said.

Forex:

The U.S. dollar weakened against some major currencies, while the WSJ Dollar Index slid 0.1%, as the Delta variant shakes confidence in the economic recovery and American authorities revive some mask-wearing mandates.

Markets expect the Fed to advance monetary tightening discussions Wednesday, a process that could potentially strengthen the greenback.

"We continue to think that the U.S. dollar will rise further in the second half of the year," Capital Economics said, "as the divergence between the US and other major economies in terms of growth and, especially, inflation persists."

The USD slid 0.2% to the euro, 0.6% versus the yen and 0.4% against the British pound.

The forint should extend its current gains over the next two months as the country's central bank is set to raise interest rates further, TD Securities said.

Hungary's central bank on Tuesday lifted its benchmark rate by 30 basis points to 1.20% and TD analysts expect another rate rise of 30 basis points in August followed by a 15 basis point increase in September.

"Whether we see more hikes after that, may ultimately be determined by the forint's trajectory against the euro," the analysts said. "We do however see risks skewed toward more tightening," they said.

Bonds:

U.S. Treasury yields for long-dated debt slid lower Tuesday, despite a stream of robust economic data.

Saxo Bank sees a 70% chance that French President Emmanuel Macron will be re-elected in April 2022 for a second five- year term after defeating National Rally's leader Marine Le Pen, said director Christopher Dembik.

Since Le Pen dropped her controversial proposal to exit the euro, risk building in French bond markets is likely to be more modest than in 2017, he said.

"We expect the OAT-bund spreads to widen by 30-35 basis points in early 2022 but to remain far from levels reached during the previous presidential election (up to 80 basis points)," he said.

Energy:

Oil rose in Asia ahead of weekly U.S. petroleum inventory data and the outcome of the FOMC's two-day meeting.

The market is now eyeing weekly U.S. inventories, with expectations of a 2.5-million-barrel drawdown, ANZ said.

Also, markets are keenly awaiting the statement following the conclusion of the FOMC meeting, though it's widely expected that the Fed won't be in a hurry to adjust its accommodative monetary policy, ANZ said.

Metals:

Gold rose in early Asian trade, but gains may be limited ahead of the outcome of the FOMC's two-day meeting later in the global day. There's investor caution ahead of the meeting which could offer details on stimulus tapering, Phillip Futures said.

The Fed is likely to affirm that a strong U.S. recovery and plans for an eventual policy shift are both ongoing, it adds.

Copper rose in early Asian trade after ending the previous session lower as the rout in Chinese technology stocks spilled over into base metals, according to ANZ. A drop in risk appetite sparked a sell-off on the Shanghai Futures Exchange which extended into the London session on the LME, it said.

"This comes as the market faces a soft patch in demand amid the normal seasonal slowdown," the bank added. Nevertheless, it noted that supply of base metals including copper remains "relatively constrained" which should offer some support to prices.

The three-month LME copper contract rose 0.5% to $9,805/ton.

TODAY'S TOP HEADLINES

Lawmakers Say Infrastructure Deal Within Reach

WASHINGTON-Lawmakers expressed renewed optimism Tuesday that they were close to reaching a deal on a roughly $1 trillion infrastructure package as they worked through a series of 11th-hour holdups.

After a day of partisan sniping over last-minute disputes, lawmakers said Tuesday they were approaching resolution to some of the issues that had bogged down the final stretch of negotiations. But they still hadn't finished their talks, weeks after the group announced that they had agreed to a loose framework for a deal.

Credit Suisse Expected to Publish Details of Archegos Failures

Credit Suisse Group AG is likely to publish an investigation as soon as Thursday into the breakdown that led to massive losses from family office Archegos Capital Management, people familiar with the matter said.

The detailed report could become public around the time Credit Suisse reports second-quarter earnings, the people said. The report focuses on problems in the bank's risk management unit, human errors in judgment and unheeded risk in concentrated positions, some of the people said.

Vaccination Rates Drive Global Economic Growth Prospects, IMF Says

The economic outlook is diverging for countries based largely on how well they are rolling out Covid-19 vaccinations, according to new forecasts released Tuesday by the International Monetary Fund.

Economic prospects are improving for advanced economies, where nearly 40% of the population has been vaccinated, despite challenges from new variants of the coronavirus, the IMF said. At the same time, far lower vaccination rates have left emerging and developing economies more vulnerable to additional waves of the pandemic and the associated economic fallout.

Durable-Goods Orders Advanced in June as U.S. Economy Continues to Grow

Orders for cars, appliances and other durable goods increased in June, signaling continued strength in the U.S. economy as manufacturers continue to deal with shortages in parts and labor and confront higher material costs.

New orders for products meant to last at least three years increased 0.8% to a seasonally adjusted $257.6 billion in June as compared with May, the Commerce Department said Tuesday. Economists surveyed by The Wall Street Journal had estimated a 2% gain.

Is Tesla the Meme Stock of Yesteryear?

For years, Tesla stock charged ever higher despite weak operating results. So far in 2021, that pattern has reversed itself.

Australian Inflation Spiked in 2Q, But Jump Is Likely to Be Temporary

SYDNEY-Australian consumer prices rose 0.8% in the second quarter, fanned by rising fuel costs, the Australian Bureau of Statistics said Wednesday.

Annual inflation increased to 3.8% in the second quarter, up sharply from the 1.1% rise marked in the first quarter and largely in line with the result expected by economists.

U.S. Home-Price Growth Rose to Record in May

Home-price growth climbed to a new record in May, as low mortgage interest rates continued to drive robust homebuying demand.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 16.6% in the year that ended in May, up from a 14.8% annual rate the prior month. May marked the highest annual rate of price growth since the index began in 1987.

What to Know About Robinhood's IPO

Robinhood Markets Inc.'s initial public offering is stirring interest among individual investors.

The trading app, which now has 22.5 million funded accounts and fueled a number of meme stock rallies in the past year, is urging its own customers to invest. The company plans to sell its users up to 35% of its IPO shares, or up to 18.3 million shares. This past Saturday, the company's executives held a virtual roadshow specifically for mainstream investors.

Ride-Sharing Startup Swvl Nearing Deal to Go Public With Female-Led SPAC

Middle East-based ride-sharing technology startup Swvl Inc. is nearing a deal to go public via a merger with a special-purpose acquisition company, according to people familiar with the matter.

Dubai-based Swvl plans to merge with Queen's Gambit Growth Capital in a deal that values the company at roughly $1.5 billion, the people said. Swvl was co-founded in 2017 by Mostafa Kandil, who formerly worked at ride-sharing company Careem, which is now a subsidiary of Uber Technologies Inc.

Glencore Probe Yields Charges Against Another Former Trader

A former Glencore PLC trader pleaded guilty Monday to what prosecutors described as a conspiracy to pay millions of dollars in bribes to officials in Nigeria and elsewhere in exchange for favorable contracts with a state-owned oil company.

Anthony Stimler, a U.K. citizen who worked for a Glencore subsidiary on the commodity trading company's West Africa desk, pleaded guilty to conspiring to violate the U.S. Foreign Corrupt Practices Act and conspiring to commit money laundering, court filings show. The guilty plea was reported earlier by Bloomberg News.

Saudi Arabia to Impose Covid-19 Vaccine Mandate

RIYADH-Saudi Arabia is set to impose one of the world's most sweeping vaccine mandates in an attempt to combat hesitancy toward the Covid-19 shots in the kingdom, as governments globally try to confront a new surge in cases of the Delta variant.

People in Saudi Arabia will need to show proof on a mobile app that they have received at least one vaccine dose to enter public and private institutions beginning Sunday, including schools, shops, malls, markets, restaurants, cafes, concert venues and public transportation. From Aug. 9, Saudi citizens will need two doses to travel abroad.

U.S., Russian Officials to Hold Talks on Future Arms Control Agenda

The Biden administration will take its first step toward defining its future arms control agenda with Moscow when senior U.S. and Russian officials meet Wednesday for strategic stability talks in Geneva.

The talks, which were agreed to by President Biden and Russian President Vladimir Putin at their summit meeting last month, will be led by U.S. Deputy Secretary of State Wendy Sherman and Russian Deputy Foreign Minister Sergei Ryabkov.

Water Protests in Iran Test Country's Leaders

Weekslong Iranian protests over water scarcity present an early test for incoming president Ebrahim Raisi, who takes office next week amid mounting challenges including a grinding economic crisis and stalled nuclear negotiations with the West.

The protests, which began nearly two weeks ago in the oil-rich southwestern province of Khuzestan, center on accusations that the Iranian government is diverting water to drill for oil, service other provinces and drive the area's ethnic Arabs off the land. Protesters have shouted "We are thirsty," while some chanted against Supreme Leader Ayatollah Ali Khamenei and the Islamic Republic.

Apple Profit Sets Record on Strong iPhone Sales

Apple Inc. posted the biggest spring-quarter profit in its 45-year history, leading a streak of record-setting earnings for technology companies even as the pandemic continues to weigh on the global economy.

Not to be overlooked, Google parent Alphabet Inc. and Microsoft Corp. also said Tuesday that their quarterly earnings excelled, underscoring how the pandemic has shifted life and work online and strengthened some of the world's biggest and wealthiest companies.

Write to sarka.halas@wsj.com

Expected Major Events for Wednesday

06:00/EU: Jun New Commercial Vehicle Registrations in Europe statistics (EU27 + EFTA3)

06:00/GER: Aug GfK consumer climate survey

06:00/NOR: Jun Retail Sales

06:00/GER: Jun Foreign trade price indices

06:00/UK: Jul Nationwide House Price Index

06:45/FRA: Jul Consumer confidence survey

07:00/SVK: Jun PPI

07:00/HUN: Jun Employment & unemployment

07:30/SWE: Jun Retail sales

08:00/ITA: Jul Consumer Confidence Survey

08:00/ITA: Jul Business Confidence Survey

08:00/AUT: Jul Austria Manufacturing PMI

10:00/IRL: Jun Retail Sales Index

16:59/SWI: 1Q Locational & Consolidated banking statistics, preliminary data

23:01/UK: Jun UK monthly automotive manufacturing figures

All times in GMT. Powered by Kantar Media and Dow Jones.

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


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  07-28-21 0019ET
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