MARKET WRAPS
Watch For:
Existing Home Sales for July
Opening Call:
Stock futures rose Monday, suggesting that the major indexes will kick off the week on the front foot as investors await data on the American manufacturing and services sectors.
Investors are largely focused on the Federal Reserve's annual economic policy symposium later this week, awaiting fresh cues on when policy makers may slow bond purchases. At the same time, rising concerns that elevated Covid-19 infection levels may slow the global economic recovery sent stocks lower last week. Dallas Fed President Rob Kaplan said Friday he may rethink his call to begin tapering asset purchases soon if the Delta variant weighs on growth.
"If there is any sign that the U.S. economy is slowing, the Fed won't taper," said Michael Hewson, chief market analyst at CMC Markets. "There is a long way between laying out a pathway to tapering and actually doing it."
Preliminary purchasing managers' surveys on manufacturing and services in the U.S. for August are due at 9:45 a.m. ET. Similar data for Australia overnight showed a contraction in activity amid tighter Covid-19 restrictions. Indicators for Japan and the eurozone came in below economists' expectations.
"We'll probably see signs of [global] growth leveling off, this will be the overall picture," said Carsten Brzeski, global head of macro at ING. "There are two reasons for that: a bit more fear and uncertainty stemming from the Delta variant and supply chain frictions."
A gauge of existing home sales in the U.S. is due at 10 a.m. Economists forecast a moderate pullback for July after prices hit a record in June.
Overseas, the pan-continental Stoxx Europe 600 ticked up 0.2%. Among European equities, British supermarket chain J Sainsbury jumped over 11% on a report that private equity giant Apollo Global Management is considering a takeover.
In Asia, most major benchmarks rose by the close of trading. The Shanghai Composite Index added 1.5% and Hong Kong's Hang Seng Index advanced 1.1%.
Stocks to Watch:
Novavax entered an advance-purchase agreement with the European Commission to supply a minimum of 20 million initial doses of its vaccine and up to a maximum of 100 million initial doses. The company agreed to supply up to a maximum aggregate of 100 million additional doses in one or more tranches, through 2023.
Novavax investors have been concerned about the timing of approvals for its vaccine. Earlier this month, Novavax said it would delay seeking U.S. emergency authorization until the fourth quarter, but said it was "highly encouraged by the filing of regulatory submissions in multiple markets." The Europe agreement calls for the company to use "reasonable best efforts" to seek European marketing authorization as soon as possible.
Forex:
The dollar and the yen weakened slightly against most G-10 currencies as risk-on sentiment was spurred by gains in European equity markets and last Friday's comments from the Fed's Rob Kaplan. Those remarks indicated a less-hawkish tone compared with his stance at the start of the month, said IG. This could offer some reassurance for market players on accommodative monetary support to remain for longer if Covid-19's Delta variant persists and hurts economic progress.
Commonwealth Bank of Australia said Jay Powell's speech at Jackson Hole is the key event this week. Powell will be bolstered by the recent strong labor market data and as a result, he may provide more clarity around when the FOMC will announce a taper which can support the dollar. CBA's base case is that the FOMC will announce a taper in September if the August non--farm payrolls are strong.
Goldman Sachs said that "relatively hawkish Fed pricing has played a role" in supporting the dollar, but "a bigger factor has been the downgrade in global growth expectations." It added that both drivers "likely need to turn for the broad dollar to move lower on a sustained basis."
Commerzbank currency analyst Esther Reichelt said the dollar has performed better than the two other main safe-haven currencies, the Japanese yen and the Swiss franc, amid concern about the increase in cases of the delta variant of the coronavirus and about growth prospects.
The dollar has additional support from optimism about prospects of the Fed's tapering, while the yen is hampered as rising Covid-19 infections look "more and more out of control." Meanwhile, given the Swiss franc's significant rise since March, the Swiss National Bank may be trying to dampen further appreciation via intervention, Reichelt said.
The price of bitcoin rose above $50,000 for the first time since May. It traded around $50,300, a 3.4% increase from its 5 p.m. level on Friday. PayPal expanded its cryptocurrency services to the U.K. on Monday, allowing its customers in Britain to buy, hold and sell digital assets such as bitcoin on its platform.
Bonds:
The yield on the benchmark 10-year Treasury note edged up but the current level of yields is signaling that the bond market is expecting a continuation of extremely loose monetary policy, ING's Brzeski said.
LBBW said it would be premature to expect a concrete timeline for tapering from the Fed at this week's Jackson Hole meeting. "We project this may rather come at the next regular meeting of the FOMC in September," said LBBW's senior fixed-income analyst Elmar Voelker.
LBBW expects the Fed to place more emphasis on signs of growing strength in the U.S. job market rather than the infrequent disappointments that have lowered the economic surprise index. Such a focus from the Fed would contrast bond market participants' focus to some extent, Voelker said.
Morgan Stanley has stuck to its long positions in 10-year Bunds versus Treasuries, a trade it believes would work out well even in case of selloffs. The strong negative net supply dynamics "should remain supportive of duration as we approach the end of the summer lull period, continuing to support our long in [10-year] Bunds vs UST," said strategists Lorenzo Testa and Alina Zaytseva.
Morgan Stanley expects the European Central Bank to maintain the current "significantly higher pace" of asset purchases under the Pandemic Emergency Purchase Programme at the September meeting and through December. "This should contrast sharply with the gradual Fed policy normalization, keeping the downward pressure on European real yields and weighing on EUR/USD."
Commodities:
Oil futures were more than 2% higher in Europe, with the weaker dollar "offering some support to the broader commodities complex," said ING's Warren Patterson.
Gold prices, last up around 0,2% but which have moved little since the start of the year, would need to see a broad risk-off move in global markets in order to move significantly higher again, said Goldman Sachs.
The precious metal's sideways trading has come as economic and inflation concerns have been largely contained while inflows into equities have remained strong, "indicating that investors still prefer riskier assets, " said Goldman Sachs. Still, the bank expects gold to tick higher as demand from emerging markets consumers recovers. Current prices look attractive for "long-term buyers looking to diversify their portfolio."
Copper was also higher, buoyed by the dollar's dip. Copper has wavered in recent sessions on concerns about the Chinese economy and Covid-19, said Ole Hansen at Saxo Bank. Still, the longer-term trends remain bullish, he said. "Not least considering the global green transformation push which over time is expected to create an increasingly tight market."
The world refined copper market showed a 2,000-ton surplus in May, according to the International Copper Study Group. That compares with an 86,000-ton deficit in April. The change came as mine production recovered slightly, while demand edged lower, the ICSG said.
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08-23-21 0556ET
