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North American Morning Briefing: Stock Futures Tick Up Ahead of Jobless Claims, Housing Data

MARKET WRAPS

Watch For:

U.S. Weekly Jobless Claims; U.S. Existing Home Sales for June; AT&T Inc. 2Q earnings; Intel Corp. 2Q earnings; Twitter Inc. 2Q earnings.

Opening Call:

Stock futures edged higher Thursday ahead of fresh data that will offer insights into the labor market's recovery and the pace of sales in the red-hot housing market.

Stocks have resumed their monthslong rally, erasing most of their losses from the sharp drop on Monday when the spread of the Delta variant raised alarms about renewed lockdown measures. Investors have since come back to equities, sending the major indexes less than 1% below their all-time highs. The focus is now on the corporate earnings season, with many companies reporting results that have exceeded Wall Street's expectations.

"The earnings results have continued to be strong and guidance is showing that the delta variant isn't impacting the recovery, so far at least," said Esty Dwek, head of global market strategy at Natixis Investment Managers. "That is giving confidence to the market that the recovery can continue."

AT&T, American Airlines, Southwest Airlines and Blackstone are among the companies scheduled to post results ahead of the opening bell. Intel, Twitter and Snap are set to report earnings after markets close.

The latest data on jobless claims, viewed as a proxy for layoffs, is due at 8:30 a.m. ET. Economists expect that new applications for unemployment insurance continued to fall last week after reaching a new pandemic low the previous week.

Data on existing-home sales, due out at 10 a.m., may show an uptick in June after the economy continued to reopen, mortgage rates remained low and sellers listed more homes for sale. Sales of previously owned homes decreased for a fourth straight month in May as inventories remained tight and prices hit a new high.

Overseas, the European Central Bank will release its latest monetary policy statement at 7:45 a.m. ET. Investors are looking for more insights about the bank's strategy in terms of bond purchases in coming months, and how it may signal its forward guidance.

"With virus cases rising again and some parts of the European economy uniquely vulnerable to rising infection rates, it seems highly unlikely that the ECB will ever be in a position to withdraw support at a time when economic activity remains far from returning to normal," said Michael Hewson, a chief markets analyst at CMC Markets.

Forex:

The dollar could drift lower in coming days as worries about the fast-spreading Delta coronavirus variant ease and reduce flows into safe havens, Oanda said.

The dollar continues to hold onto most of its recent multi-week appreciation even after giving back some of those gains overnight, Oanda analyst Jeffrey Halley said.

With Covid-19 complacency rising and no significant economic data to change the narrative this week, the dollar could see a bigger reversal lower, he said. "A break of 92.50 by the dollar index likely signals more US dollar weakness into the week's end and early next week."

It wouldn't take much for the euro to rally against the dollar after Thursday's ECB meeting as the market has priced in a cautious policy decision, BK Asset Management said.

"Everyone expects the ECB to maintain their dovishness especially after they tweaked their inflation target but the relatively minor declines in EUR/USD this month suggests that sellers may be exhausted," BK analyst Kathy Lien said.

That poses a risk to investors betting on further EUR/USD losses after the ECB's announcement, she said. The ECB's new inflation target indicates they'll be among the last to tighten policy but if ECB President Christine Lagarde suggests otherwise, EUR/USD could soar, she said.

Bitcoin rose 1% from its 5 p.m. ET level, trading around $32,200 and extending gains into a second day. The cryptocurrency rallied Wednesday after Tesla Chief Executive Elon Musk said both he and his rocket company SpaceX hold bitcoin.

Bonds:

In bond markets, the yield on the benchmark 10-year Treasury note ticked up to 1.290% from 1.279% on Wednesday, marking a third consecutive day of gains. On Monday, it plunged to the lowest level since February as safe-haven assets rallied.

"It is an easing in some of these fears, maybe it is an indication that we're past the peak in Delta variant fears, at least for now," Ms. Dwek said. "There is probably a bit more room [for yields] to rise, maybe not immediately, but over the coming months."

The rally in U.S. Treasuries, which pushed yields lower, is overdone, according to BNP Paribas Asset Management, which anticipates higher nominal yields in the remainder of the year, chief market strategist Daniel Morris said.

In contrast to the first quarter, BNP Paribas AM expects higher real yields rather than inflation expectations to drive the rise in yields, he said.

The rapid spread of the latest Delta variant of the coronavirus is likely one of the drivers of the recent decline in core government bond yields, he adds.

The ECB's recent strategy review and new symmetric 2% inflation target shouldn't prompt immediate policy changes at Thursday's meeting, but may lead it to tweak its wording to hint at prolonged stimulus, Rabobank said.

"The format of its meeting's proceedings will be updated, which may lead to a slightly more dovish forward guidance, particularly on policy rates, to indicate that the ECB will persist in its monetary accommodation," the bank said.

There is a small risk of "more significant dovish changes" to guidance, including a possible formal indication of a transition phase once the emergency pandemic-related bond-buying program ends. "One can easily imagine [ECB President Christine] Lagarde never raising rates during her 8 years in office," Rabobank said.

Commodities:

Oil prices rose in early European trade. On Wednesday, both benchmarks clawed back more of their heavy, Delta variant-driven Monday losses.

Bearish EIA data, which showed the first weekly rise in U.S. crude stocks in nine weeks, put pressure on oil Wednesday, but traders later shook this off.

"Markets are shrugging off most of the macro concerns around the spreading of a more infectious strain of COVID-19. Even weak weekly data could not stop a robust oil price increase," said Citi's Edward Morse.

"Traders have one eye on the prospects of OPEC+ oil [being] unlikely to get to the market anytime soon and the Iranian negotiations [being] delayed further," he added.

LME three-month copper futures were up 0.8% at $9,430.50 a metric ton, erasing what was left of their week-to-date losses. With the recent rise in the U.S. dollar having softened in the past day or so, the pressure on dollar-denominated commodities like copper has eased, Marex Spectron's Anna Stablum said.

Meanwhile, that softer dollar is offsetting some, though not all, of the factors weighing on gold prices. London gold was down, with "gold sidelined by the combined recovery in safe-haven yields and risk sentiment," according to Saxo Bank's Steen Jakobsen.

   
 
 

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July 22, 2021 06:02 ET (10:02 GMT)

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