Eurozone, Germany, France, U.K., Italy Services PMI; Eurozone Quarterly Balance of Payments, Sectoral Accounts; France Industrial Production; UK Official Reserves, Car Registrations; OECD CPI; U.S. Independence Day Observed, Financial Markets Closed; updates from Repsol, Ryanair
Equities in Europe are likely to edge up on Monday, with gains capped due to the U.S. holiday. In Asia, stocks were steady, oil dipped on OPEC+ worries, while the dollar, Treasury yields and gold prices were firmer.
European stocks may struggle for direction on Monday, with oil lower on OPEC+ tensions and U.S. markets closed for the July 4 Independence Day holiday.
Asian stocks were steady following Wall Street’s gains on Friday, with major U.S. indexes notching a trio of fresh highs as an early summer rally picked up steam.
Strategists said Friday’s U.S. jobs data was unlikely to significantly change the outlook for the Federal Reserve’s withdrawal of support from markets.
Goldman Sachs wrote in a note after the report that it expects the Fed to announce a reduction in bond purchases in December or possibly November, while TD Securities strategists said they expected an announcement at the Fed’s December meeting. Regardless of timing, the combination of stronger job growth and slower inflation looks to have gotten U.S. investors in a risk-on mood.
The dollar strengthened slightly in Asian trading and could extend gains this week, if the minutes from the FOMC’s mid-June meeting reinforce the Fed’s hawkish shift, said CBA.
More details on when the FOMC could taper its asset purchases might boost the dollar, said CBA, adding that U.S. data are currently backing the economy’s outperformance against many other major economies, which may be a dollar tailwind that could persist for rest of 2021.
Capital Economics said it expected the dollar to make further headway, provided that U.S. data continue to come in strong.
UniCredit said sterling, the Australian dollar, the South African rand and the Russian ruble have so far shown little reaction to the spread of the Delta coronavirus variant in their countries but that could change.
“The more the Delta variant forces governments to backpedal on the relaxation of restrictions or to introduce new lockdown measures, the more their respective currencies are likely to suffer against the three main safe-havens,” said UniCredit forex strategist Roberto Mialich.
U.S. government bond yields edged up from Friday’s levels in a largely upbeat Asian session.
The 10-year Treasury yield declined on Friday to 1.434%, the lowest since March, as markets seemed to settle on a more measured outlook for economic growth following the mixed jobs report.
Some investors have recently stepped back from bond bets on a turbocharged economic recovery. Yields on long-term Treasurys-which tend to rise when the growth outlook improves-fell during the second quarter, indicating that investors were showing some doubts about the economic outlook. Earlier in the year, many had bet that large-scale government spending, near-zero short-term interest rates and bond-buying efforts by the Fed would accelerate the recovery, driving yields to pandemic highs.
“We think the rates market is struggling to price in a stronger economic outlook or a faster Fed exit,” TD Securities analysts wrote in a note to clients Friday.
Oil futures were slightly lower in Asia on signs of disunity in the OPEC+ alliance, said ANZ, with Saudi Arabia and the UAE at odds over the extent of possible production increases. “Negotiations will resume on Monday after what’s likely to have been a weekend of furious diplomacy.”
If OPEC+ were to fail to come to a deal and leave existing curbs in place, it would be a positive development for crude, analysts argued.
“If OPEC+ walks away from this meeting with no agreement, look for WTI to rally to levels above the Oct. 3, 2018 seven-year high” at $76.90 a barrel, said Robert Yawger, executive director of energy futures at Mizuho Securities.
But the reaction by members eager to boost production to take advantage of higher prices in the event of an impasse can’t be guaranteed, other analysts said. If an impasse makes it less likely producers will comply with existing production curbs, prices could suffer.
Gold inched higher, adding to Friday’s gains amid a retreat in benchmark Treasury yields and a steadying dollar. The precious metal could gain support in the near term, but any sharp rise in gold would likely occur only after it breaks the psychological $1,800 level, said IG.
Gold futures on Friday closed higher for a third straight session, which helped contracts to register a modest weekly advance.
Base metals were largely flat despite hopes of stronger consumer demand in the U.S.
ANZ said wage growth tends to bolster demand for durable goods, a key sector for base metals, as evidenced by the 1.7% rise in May’s new orders for U.S. durable goods. However, copper’s outlook might be hampered by stronger supply, said ANZ, citing signs that copper ore output is rising on reports that suggested Antofagasta and Chinese copper smelters have agreed on treatment charges for copper concentrates that are much higher than current spot rates.
Recently, the three-month LME copper contract was 0.1% higher at $9,384 a ton, while the aluminum contract was flat at $2,562.50 a ton.
China’s narrowed steel profits suggest steel production must slow, but Citi said it “doesn’t feel like a sell case for the big cap miners” of raw ingredient iron ore.
Neither BHP nor Rio Tinto are expensive, said Citi, with both trading around or slightly below through-cycle multiples based on the bank’s 2024 commodity price estimates when adjusting the balance sheet for excess cash.
“They’re not cheap” either, but dividends are expected to remain high, said Citi, forecasting an average annual 2021-2023 dividend yield of roughly 9% for BHP and 13% for Rio Tinto.
TODAY’S TOP HEADLINES
China Services-Sector Gauge Fell in June Due to Uptick in Covid-19 Cases
A private gauge of China’s services sector hit its lowest growth rate for 14 months in June due to the uptick in Covid-19 cases which reduced travel demand.
The Caixin China services purchasing managers index was at 50.3, down sharply from 55.1 in May, Caixin Media Co. and research firm IHS Markit said Monday.
European Business Leaders Want a Stronger Hand With China, Not Decoupling
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Members of the European Round Table for Industry, or ERT, a trade group of almost 60 chief executives and chairpersons of major Europe-based multinationals, on Monday called on EU leaders to push for better business terms with China and not to turn away, despite some leaders’ growing misgivings about Beijing and amid improving ties with Washington.
OPEC-Plus Deadlocked on Oil Production Boost Deal
OPEC and a Russia-led group of producers failed to agree on how to meet fast-rising demand from the industrialized world, as the club of rich nations emerges from pandemic lockdowns.
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SoftBank-Backed Fortress Investment Strikes $8.7 Billion Deal to Buy Morrisons U.K. Grocery Chain
A group of investors led by SoftBank Group Corp.’s Fortress Investment Group LLC agreed Saturday to acquire U.K. grocery chain WM Morrison Supermarkets PLC for more than $8.7 billion, a bet that the retailer can thrive in a hypercompetitive industry grappling with the shift to online commerce.
New York-based Fortress has joined forces with Canadian Pension Plan Investment Board, and the real-estate arm of Koch Industries, a private conglomerate headed by billionaire Charles Koch, to make the offer of GBP6.3 billion, equivalent to $8.71 billion.
Moscow Tightens the Clamp on Russia’s Millions of Covid-19 Vaccine Holdouts
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Taliban Fighters Advance After U.S. Closes Main Afghan Base
KABUL-Taliban fighters have moved to take control of dozens of new districts in Afghanistan in recent days, after the U.S. last week closed its operations at Bagram Air Field, the centerpiece of the American military presence for nearly 20 years.
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China Launches Review Into U.S.-Listed Chinese Tech Companies
A unit of China’s cybersecurity regulator launched data-security reviews of apps operated by two other U.S.-listed Chinese companies, just days after announcing a similar probe against ride-hailing giant Didi Global Inc.
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