MARKET WRAPS
Stocks:
European stocks rose Wednesday as investors awaited fresh
guidance from the Federal Reserve.
Travel stocks were boosted by loosening travels restrictions,
while banking names also lifted markets. Barclays rose almost 4% in
London after the U.K. bank reported a rise in quarterly profit that
surpassed analysts' expectations. "Understandably the reliance upon
their investment banking division does highlight why we are likely
to continue seeing underperformance for the UK banks compared with
their US counterparts," said Josh Mahony at IG.
"However, with the government mitigating much of the economic
fallout of the pandemic, and spending likely to gradually increase,
banking stocks remain a strong pro-cyclical pick going forward," he
added.
In the U.S., the stock market is hovering near all-time highs,
with investors betting on strong corporate earnings, the economic
rebound, and continued support from central banks' easy monetary
policies.
Their optimism has been tempered in recent days by concerns
about the Delta variant of Covid-19, China's regulatory crackdown
and the risk of persistently high inflation.
"There is a general fishing for direction right now," said
Aoifinn Devitt, chief investment officer at Moneta Group. "The
strong underpinning of the market is that there is a lot of capital
waiting on the sidelines, waiting for an opportunity to enter, and
that means any corrections are very short lived."
The market's biggest vulnerability right now is that stocks
can't trade at current valuations without continued support from
the Fed, Ms. Devitt added.
U.S. Markets:
Stock futures traded mixed, as investors awaited the outcome of
the Fed meeting and more corporate results, on the heels of results
from Apple and other tech titans.Fed officials are set to conclude
their two-
day policy meeting on Wednesday, with a statement due to be
released at 2 p.m. ET. The focus will be on any signals from
Chairman Jerome Powell about whether policy makers are accelerating
deliberations over how and when to pare back on their easy-money
policies, and any shift in the Fed's view on inflation.
"If Powell is being honest, every economist has been surprised
about how high inflation has been, and there is no sign of it
coming off just yet, " said Brian O'Reilly, head of market strategy
for Mediolanum International Funds. "But they are going to look
through this. There will be no change, but they are at the stage
where they are starting to talk about talking about tapering."
Ahead of the opening bell, Class A shares in Google's parent
company, Alphabet, rose almost 2% after the technology giant said
late Tuesday that its profits had surged to a record. Shares in
Apple fell 0.8% after the largest American company by market value
warned that its rate of growth will likely slow.
Thermo Fisher Scientific, Spotify Technology, Pfizer,
McDonald's, Bristol-Myers Squibb and Boeing are among a host of
large companies set to release earnings ahead of the opening bell.
Facebook, Qualcomm, PayPal Holdings and Ford Motor are due to post
reports after markets close.
Forex:
The dollar will move materially if the Federal Reserve mentions
the spread of the Delta coronavirus variant or a tapering of asset
purchases in its policy statement later Wednesday, BK Asset
Management said.
"If the Fed includes concerns about the Delta variant, the
dollar could extend its slide quickly, and if they shrug off those
worries and officially acknowledge that taper is coming, the dollar
will soar," BK forex strategist Kathy Lien said.
Fed Chair Jerome Powell will be pressed to discuss both topics
even if they don't make it into the policy statement, she said.
The dollar could fall if the Fed's guidance on asset purchases
is left unchanged in a policy decision later Wednesday, Commerzbank
said.
Many market participants expect the Fed to signal it could scale
back stimulus soon by dropping the word "substantial" from its
statement that it will maintain the current pace of asset purchases
until "substantial further progress" has been made towards its
goals, Commerzbank currency analyst Ulrich Leuchtmann said. "But
that is not our house view." That means the dollar should end the
day lower, Leuchtmann said.
The fall in U.K. coronavirus cases is a promising development
for the pound in the near-term because it could be years before the
real economic impact of Brexit becomes clear, Commerzbank said.
Leaving Brexit uncertainty aside, an abatement of the pandemic
"speaks for positive real economic impulses," which should support
the pound, Commerzbank currency analyst Esther Reichelt said.
"However, the Bank of England's rather dovish stance should put
a stop to further significant GBP gains for the time being."
Bonds:
The yield on the benchmark 10-year Treasury note rose to 1.256%
from 1.235% on Tuesday.
The Fed is likely to leave rates, the pace of asset purchases
and guidance all unchanged at its decision on Wednesday, said
UniCredit. A formal discussion about tapering asset purchases will
start at the current meeting, said UniCredit, although it doesn't
expect any clear hint on the timing or composition of tapering.
"There are a range of views on the FOMC regarding tapering, and
it will likely take a while to build a consensus," UniCredit
said.
The Italian bank's analysts add that the FOMC also wants to
gather more clarity from data, while the spread of the delta
variant favors caution.
Commodities:
Oil prices were higher, leaving both benchmarks 0.6% and 0.3%
below the level at which they began the week. Gentle gains follow
API inventory data released Tuesday that showed a larger than
expected drawdown in U.S. crude stocks, according to OANDA's
Jeffrey Halley.
Traders will watch out for EIA data released later
Wednesday.
Gold prices ticked higher ahead of the Fed's monetary policy
meeting while base metals were mixed. Three-month copper on the LME
fell 0.6% to $9,735.50 a metric ton while aluminum rises 0.4% to
$2,496 a ton.
EMEA HEADLINES
Deutsche Bank Posts Surge in Profit but Faces Headwinds
Deutsche Bank AG's results signaled that the bumper profits
accruing to its investment bank may have peaked, exposing the
deeper challenges the lender faces two years into a strategic
makeover.
The Frankfurt-based bank reported a drop in investment-banking
revenue in the second quarter as booming client activity during the
pandemic slowed down. Still, net profit surged compared with last
year as its business lines held better than expected and the
economic rebound in Germany put a lid on souring loans.
Barclays Profit Soars on Investment Banking
LONDON-Barclays PLC Wednesday said its net profit rose in the
second quarter, driven by a strong performance in its investment
bank.
The London-based bank earned GBP2.11 billion, equivalent to
$2.92 billion, in the three months to the end of June, up from
GBP90 million in the same period last year.
Rio Tinto Net Profit Jumps on Boom in Commodity Prices
SYDNEY-Rio Tinto PLC reported a record first-half net profit and
more than tripled its midyear payout to shareholders, benefiting
from a bull run in commodity prices that has stoked inflation
expectations around the world.
On Wednesday, the world's second-largest mining company by
market value said net profit for the six months through June rose
to more than $12.3 billion from over $3.3 billion a year
earlier.
German Consumer Confidence Set to Stagnate in August
German consumer sentiment is expected to remain unchanged from
the previous month in August, according to data from the
market-research group GfK released Wednesday.
GfK's forward-looking consumer sentiment index is set to stay at
minus 0.3 points in August, unchanged from July, when it reached
the highest level since August 2020. Economists polled by The Wall
Street Journal had expected consumer sentiment to rise to 0.5.
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.
BASF Swung to 2Q Profit; Confirms Sales, Outlook
BASF SE said Wednesday that it swung to profit for the second
quarter and confirmed sales figures and a raised outlook it
provided during preliminary results.
The German chemicals company posted net profit of 1.65 billion
euros ($1.95 billion) for the second quarter, from a loss of EUR878
million in the same period a year earlier.
Santander Profit Beat Expectations Amid Lower Provisions
Banco Santander SA said Wednesday that it swung to a profit in
the second quarter of the year as revenue grew and provisions fell,
and that it is on track to outperform its profitability target for
2021.
The Spanish lender reported a net profit of 2.07 billion euros
($2.45 billion) from April to June, a reversal from a year earlier,
when it posted a EUR11.13 billion net loss due to one-off
impairments related to the Covid-19 pandemic. Analysts expected
profit of EUR1.77 billion, according to a consensus provided by
FactSet.
UK Retail Prices Fell at Faster Pace in July
U.K. retail prices fell more sharply in the first week of July
due to fierce competition between supermarkets and a steeper drop
in nonfood prices, according to the latest report by Nielsen IQ and
the British Retail Consortium released Wednesday.
Prices at U.K. stores dropped 1.2% year-on-year between July 1
and July 7, compared with a decline of 0.7% in June, the report
found.
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.
GLOBAL NEWS
Fed Meeting Will Focus on Tapering Timeline
Federal Reserve officials are set to resume deliberations
Wednesday about how and when to begin paring their asset purchases
amid an economic rebound clouded by supply-chain bottlenecks and
rising Covid-19 cases.
Hot Housing Market Lets Banks Sell Mortgage Risk
A red-hot housing market is enabling banks to sell a new kind of
bond that shares the risk of mortgage and loan defaults with
institutional investors.
Texas Capital Bank recently sold $275 million of securities to
investors looking to cash in on the pandemic-fueled boom in home
prices. The bonds are backed by short-term loans the bank makes to
mortgage lenders. When those lenders' borrowers default, the
investors in the bonds effectively cover the loss.
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.
Biden to Propose Buy American Rule for Government
Procurements
WASHINGTON-The Biden administration is proposing a rule that
would accelerate federal procurement policy to require a higher
level of American-made products.
Under an initiative to be announced Wednesday, the government
would require that products obtained under the longstanding "Buy
American" program have at least 60% of the value of components made
in the U.S., up from the current 55% threshold. That would increase
to 75% by 2029, White House officials 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.
GOP Bill Attempts to Inject Life Into Stalled Internet Privacy
Talks
With work toward a federal privacy law largely stalled for the
past 18 months, a top GOP lawmaker is trying to turn back the
clock.
Sen. Roger Wicker (R., Miss.) plans Wednesday to introduce the
Setting an American Framework to Ensure Data Access, Transparency,
and Accountability Act. The new bill from the Senate Commerce
Committee's ranking member largely reverts to a 2019 draft bill for
ensuring consumers' control over personal data collected or
processed by companies.
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(END) Dow Jones Newswires
July 28, 2021 06:15 ET (10:15 GMT)
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