EMEA Morning Briefing: FDA Vaccine Boost to Support Stocks


Watch For:

Germany GDP breakdown; U.K. CBI Distributive Trades Survey; OECD Trade Statistics; Hungary Interest Rate Decision; Boris Johnson, Joe Biden hold G7 leaders' meeting on Afghanistan; updates from Schneider Electric, Petrofac, Wood Group, Boskalis Westminster, Prosus

Opening Call:

European shares should advance following the FDA's approval of the Pfizer-BioNTech vaccine. In Asia, shares rose following Wall Street's strong finish, the dollar and oil gained slightly, Treasury yields were steady but gold edged lower.


European stock markets should add to Monday's gains when trading restarts, with the FDA's full approval of the Pfizer- BioNTech Covid-19 vaccine supporting a risk-on mood.

The FDA's nod and gains in technology stocks helped lift U.S. stocks on Monday. Pfizer stock rose 2.5% and BioNTech climbed 9.6%.

"Many believe that [vaccine approval] will create that much more momentum in vaccine trends, especially in those states and population groups that are lagging," said Joe Amato, chief investment officer at Neuberger Berman.

On the economic front, preliminary purchasing managers' surveys on U.S. manufacturing and services missed economists' estimates but IG said that with focus on the Jackson Hole symposium, investors may view the disappointing data in a positive light, as it may lower the chance of a Fed tapering announcement this week.

Stocks to watch: Cost inflation, ongoing asset impairments and rising rehabilitation requirements, in addition to recent strategic changes, may cloud the short-term outlook for BHP, according to Credit Suisse, which favors rival Rio Tinto.

BHP is also lacking longer-run growth options, with Jansen the only major project on the horizon--and even that has limited potential for returns, said CS.

"Comparatively, Rio has a larger project pipeline and more 'future-facing' opportunities [copper and lithium] alongside relatively better ESG trajectory [admittedly off a lower base]."


The dollar was a touch firmer in Asia, steadying after Monday's broad losses.

JPMorgan said both sides of the dollar smile came into play simultaneously last week and should persist. "The worsening of the Delta variant outlook only compounds peak growth concerns we have been flagging and positioned for, yet there is only a modest cyclical risk premium in the dollar."

The bank said its systematic growth framework has also turned defensive and net long the dollar as the growth outlook for 25% of countries has been materially downgraded. "Fed risks remain squarely skewed to the upside for the dollar," and the yearly Jackson Hole symposium and the September FOMC meeting remain key catalysts for a repricing of still- dovish U.S. curves.

ING said any dollar declines are likely to remain limited before Jerome Powell speaks at the Jackson Hole symposium on Friday. Ahead of the speech, which could provide clarity on the timing of tapering asset purchases, investors probably won't want to heavily add to positions in risky assets and the dollar won't sell off "too much," said ING analysts. "We suspect DXY buyers may return in the 93.20 area," referring to the dollar's safe-haven status.

The euro's gains against the dollar may not extend much further, said Saxo Bank. It is "far too early" to call the current rise in EUR/USD a reversal of the exchange rate's recent depreciation, said Saxo Bank's forex strategist John Hardy.

A firmer rally of EUR/USD toward 1.1800 that sticks after Jerome Powell speaks at the Jackson Hole symposium is needed to suggest the sub-1.1700 lows of last week mark a cycle low, Hardy said. "Until then, the 1.1600 and 1.1500 levels are potential targets to the downside, with 1.1290 the ultimate area."

Commerzbank said the forint's gains over the past month mostly reflect a deceleration in underlying inflation. Hungary's central bank is expected to raise its benchmark rate by another 30 basis points at Tuesday's policy meeting but this is priced in, said Commerzbank's Tatha Ghose.

"The [forint's] strength is more likely being driven by favorable inflation developments in Hungary, where the tax- adjusted core inflation rate has fallen back closer to the 3% inflation target," said Ghose. That means Hungary's real interest rate adjusted for core inflation has turned less negative over the past month, he said.


U.S. Treasury yields were little changed as investors continue to recalibrate their expectations for Jerome Powell's important speech later this week, which could provide the clearest insights yet about the timetable and pace of rolling back Covid-era accommodations.

Analysts had been bracing for an announcement on the tapering of the Fed's $120 billion in monthly purchases of Treasurys and mortgage-backed securities before the end of the year. But given the risks to the economy from the continuing pandemic, analysts now say Powell may remain vague around the timing of any tapering process.

"Tapering speculation may cause intermittent spikes in bond yields, but we remain opportunistic because this era of low yields is likely to persist," Scott Ruesterholz, a portfolio manager at Insight Investment, wrote in note. "The Fed has pumped more liquidity into the system than can be deployed and money funds have responded by lodging $1 trillion in cash through the overnight reverse repo system. This extreme liquidity will buffer the initial impacts of tapering."

Corporate bond valuations in emerging markets are looking expensive after investors dumped stocks due to virus and growth concerns last week, said TD Securities. While the S&P 500 lost 0.5% and the MSCI EM index nearly 5% last week, the rout didn't spill over into corporate bonds, said analysts at the bank.

"Equity and general EM performance...make the EM credit universe look a little stretched for the short term." EM corporate bonds are 1-2% overvalued in total return terms over a rolling 3-month horizon based on the analysis of an asset swap that uses the zero-coupon yield curve to calculate the spread, known as zero-volatility spread.


Oil prices were a few cents higher in Asia after they scored their biggest daily gain since March on a 'fire sale' buying spree, with both benchmarks settling more than 5% higher on Monday.

"Oil was way oversold and [a] fire sale was on," Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. " Bargain hunters are wasting no time to closing the deal and this is pushing the price higher."

OANDA agreed that oil is likely to be supported going forward as its recent selloff was overdone and as inventories continue to shrink and believes prices could swiftly rally back to $70.00 if the Fed doesn't send the dollar higher by formally committing to tapering asset purchases.


Gold dipped into the red in Asia as the dollar strengthened slightly. The precious metal is likely to remain relatively firm above the $1,800 level on doubts that the Fed will taper monetary stimulus anytime soon due to rising Covid-19 cases in the U.S., said Phillip Futures. It sees resistance at the 200-day exponential moving average of $1,825 for the December futures contract.

Bullion settled 1.3% higher on Monday, supported partly by weakness in the dollar, leading prices back above $1,800 for the first time in over two weeks.

Copper was little changed, with risk-on sentiment in Asia keeping prices steady. Media reports that China reported zero daily Covid-19 cases was music to ears of investors who had been concerned about the impact of the outbreak on industrial activity, said ANZ.

Sentiment has also been lifted by signs of stronger demand, said ANZ. Cancelled warrants--which are orders to remove metal from LME warehouses--recently jumped the most in six years.


Democrats Hit Impasse on Infrastructure Bill, Broader Spending Package

WASHINGTON-House Speaker Nancy Pelosi (D., Calif.) and a group of centrist House Democrats worked to break a deadlock Monday night over the party's legislative strategy, as leaders tried to unify the party's rival wings.

The fight centers on Democratic leaders' plans to yoke together two pieces of legislation: a roughly $1 trillion infrastructure bill that the Senate passed earlier this month with bipartisan support and a $3.5 trillion package of healthcare, education and climate policies that lacks GOP backing and could take months to complete.

U.S. Expansion Slowed in August, Survey Shows

U.S. factories and service providers reported sharply slower growth in August, the forecasting firm IHS Markit said Monday in its surveys of purchasing managers.

Its index of service-sector activity, the broadest segment of the economy, fell to 55.2 in August from 59.9 in July, hitting an eight-month low. An index of factory activity dropped to 61.2, a four-month low, from 63.4 in July. A reading above 50 suggests activity-as measured by sales, output, prices and other factors-is growing.

FDA Gives Pfizer-BioNTech Covid-19 Vaccine Full Approval

The U.S. gave full approval for use of the Covid-19 vaccine from Pfizer Inc. and partner BioNTech SE Monday, a move quickly followed by announcements from the Pentagon, the New York City school district and others that they would begin requiring vaccinations.

The Food and Drug Administration's approval was seen by public health officials as a key step to convince hesitant individuals to get the shot and to encourage employers to mandate it.

Write to paul.larkins@dowjones.com

Expected Major Events for Tuesday

05:00/FIN: Jul PPI

05:00/FIN: Jul Labour force survey, incl unemployment

06:00/GER: 2Q GDP - Detailed breakdown

07:00/CZE: Aug Business cycle survey (consumer/business confidence)

08:00/POL: Jul Unemployment

10:00/UK: Aug CBI Distributive Trades Survey

10:00/FRA: 2Q OECD trade statistics release

12:00/HUN: Aug Hungarian interest rate decision

23:01/UK: Aug REC JobsOutlook survey

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  08-24-21 0024ET
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