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North American Morning Briefing: Stock Futures Point to Dow Extending Rebound

MARKET WRAPS

Watch For:

EIA Weekly Petroleum Status Report; Canada New House Prices for June; Coca-Cola Co. 2Q earnings; Johnson & Johnson 2Q earnings; Verizon Communications Inc. 2Q earnings.

Opening Call:

Stock futures edged higher Wednesday, suggesting major indexes will extend their rebound following a volatile stretch of trading sparked by worries about the spread of coronavirus.

Futures for the S&P 500 ticked up a day after the broad market gauge posted its biggest one-day gain since late March. The advance almost unwound the S&P 500's steep drop from Monday and pushed the index to within 1.5% of its record closing high.

Investors are putting concerns about the economic effects of the Delta variant to one side, though markets are expected to remain jittery heading into the peak summer vacation period. A banner start to the corporate earnings season among the biggest U.S. companies is helping buoy sentiment. Many money managers also see few other places to deploy cash with yields on government and corporate bonds trading at depressed levels.

"The market is facing a genuine test: whether the link between case rises and hospitalizations is broken," said Peter van der Welle, a multiasset strategist at Robeco. Nonetheless, Mr. van der Welle expects a second leg of the reopening trade-in which bond yields, economically sensitive stocks and commodities all rose-to get under way once there is more clarity about the Delta variant.

Johnson & Johnson, Harley-Davidson, Coca-Cola and Verizon Communications are among the large companies due to report earnings before the opening bell. Texas Instruments, Whirlpool and Equifax are scheduled to post results after markets close.

Of the 60 S&P 500 constituents that have filed quarterly results, 85% have beaten analysts' expectations, according to FactSet.

"Consumers are going to remain at least moderately cautious because of the spread of Delta everywhere," said Christopher Jeffery, head of inflation and rates strategy at Legal & General Investment Management. "It is really hard to think the U.K. template isn't at least going to be partly followed in the U.S. and Europe," he added, referring to a spike in cases in the U.K.

Still, Mr. Jeffery is upbeat about the outlook for stocks. "It is hard for us to get structurally negative on equities" given the strong start to earnings season, he said.

In overseas markets, the Stoxx Europe 600 jumped, buoyed by shares of travel, leisure and retail companies.

Forex:

The dollar rose as investors pile into safe-haven assets due to fears the spread of the delta coronavirus variant could derail the global economic recovery.

Safe-haven flows appear to be propping up U.S. bonds and those inflows are seeing international investors buy the dollar, lifting the currency despite the fall in U.S. yields, Oanda analyst Jeffrey Halley said.

"Until nerves calm sufficiently about the impact of the delta variant on the global recovery, that strength should continue, especially if the European Central Bank is dovish at tomorrow's policy meeting."

Uncertainty over the rapidly spreading Delta coronavirus variant and a potential escalation in U.K.-EU tensions are likely to weigh on the pound in the short-term, MUFG Bank said.

U.K. interest rate rise expectations will remain subdued for the remainder of the summer due to concerns about the economic impact of coronavirus and post-Brexit tensions, MUFG analyst Derek Halpenny said. Rising U.K. coronavirus cases will reduce social mobility and hurt economic activity, he said.

Meanwhile, the U.K. is set to present its proposals for overhauling post-Brexit trading arrangements between Britain and Northern Ireland later Wednesday.

"The EU is unlikely to accept these changes reinforcing the prospect of a fresh trade conflict," Halpenny said.

Bonds:

The yield on 10-year Treasury notes ticked up to 1.234% from 1.208% Tuesday. Yields and have skidded in recent weeks in a sign of waning concerns about a prolonged overshoot in inflation.

Commodities:

Oil prices were higher, though both major benchmarks remain down 5% and 6% respectively so far this week after rising Delta variant cases prompted sharp selloffs Monday.

More bad news may be ahead for those watching oil demand as a gauge of economic activity and coronavirus recovery: API data released late Tuesday "were tilted in the bearish direction," DNB Markets' Helge Andre Martinsen said.

Both the API's readings for crude and gasoline inventories rose week-on-week. If EIA data confirm those readings Wednesday, that rise will be the first since May, Martinsen said.

Most metals edged lower Wednesday and remain in the red so far this week despite some rallies Tuesday. LME three-month copper futures were down 0.2% at $9,324 a metric ton, with concerns about rising coronavirus cases spooking investors, according to Marex Spectron's Anna Stablum.

Wednesday's slip comes despite Chile's huge mine at Escondida posting a 10% drop in production for the year ending June, ING's Warren Patterson said.

London gold prices were down 0.2%, with the WSJ dollar index edging up 0.2%. The two assets tend to move in opposite directions.

   
 
 

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July 21, 2021 06:08 ET (10:08 GMT)

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