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EUROPEAN MIDDAY BRIEFING: Stocks Rise With ECB Meeting and Earnings in Focus

MARKET WRAPS

Stocks:

European markets continued to gain ground on Thursday ahead of what's expected to be an easing signal from the European Central Bank, as earnings results continue to demonstrate corporate health.

Investors are wavering between optimism about a global recovery and unease that it might be delayed by the spread of the virus's more contagious delta variant. They also worry central bankers might feel pressure to tame rising inflation by rolling back easy credit.

"The delta variant remains an ever-present downside risk for the markets in the near-term," said Craig Erlam of Oanda in a report, "but as long as inflation remains only a temporary problem, it also keeps central bank hawks at bay."

Up ahead, the ECB 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.

Among European equities, Swedish private-equity firm EQT jumped nearly 12% after reporting earnings growth that exceeded analysts' estimates. Unilever tumbled over 4% after posting a decrease in pretax profit for the first half of the year.

U.S. Markets:

Stock futures edged higher 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.

Forex:

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 says. 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.

   
 
 

EMEA HEADLINES

Unilever Shares Fall on Lower 1H Pretax Profit, Warning of Rising Costs

Shares in Unilever PLC fell Thursday after the company reported a slight fall in pretax profit for the first half of the year, and said it expects full-year margins to remain flat as a result of rising costs.

The Anglo-Dutch multisector-goods producer--which owns consumer brands such as Ben & Jerry's ice cream, Dove soap and Cif and Domestos cleaning products--posted a pretax profit of 4.37 billion euros ($5.15 billion) for the period, compared with EUR4.53 billion a year earlier.

   
 
 

Roche 1H Net Profit Fell Despite Higher Sales; Backs 2021 Outlook

Roche Holding AG said Thursday that profit for the first half of the year decreased though sales grew, driven by the diagnostics division.

The Swiss pharmaceutical major posted net profit for the period of 7.80 billion Swiss francs ($8.50 billion), compared with CHF8.08 billion a year earlier, on sales that rose to CHF30.71 billion from CHF29.28 billion.

   
 
 

Publicis Groupe Sees a Quicker Recovery as Organic Revenue Rises

Publicis Groupe SA reported a 17.1% increase in organic revenue in the second quarter, joining competitors in reporting significant growth over the dire second quarter last year, when advertisers paused spending amid uncertainty caused by the coronavirus pandemic.

During the same period last year, the Paris-based company reported a 13% decline in organic revenue, a common metric that strips out the effects of currency fluctuations, acquisitions and disposals.

   
 
 

ABB 2Q Net Profit More Than Doubled; Raises 2021 Guidance

ABB Ltd. said Thursday that second-quarter net profit more than doubled and lifted its guidance for 2021, as it recovered from when the adverse effects of the Covid-19 pandemic on its business were at their peak.

The Zurich-based engineering company said quarterly net profit rose to $752 million from $319 million in the same period last year, above expectations of $631 million from analysts polled by FactSet.

   
 
 

Vantage Towers Says 1Q Revenue Rose; Backs FY 2022 Targets

Vantage Towers AG said Thursday that revenue for the first quarter of fiscal 2022 increased as the company signed partnerships bringing in new tenancies.

The European mobile-towers company said revenue excluding pass-through for the three months ended June 30 climbed to 246 million euros ($290.2 million) from EUR241 million on a pro forma basis last year.

   
 
 

Centrica Swung to 1H Pretax Profit, But Ebitda Fell

Centrica PLC on Thursday reported a profit for the first half of 2021 driven by one-offs.

The energy company, which owns British Gas, made a pretax profit of 907 million pounds ($1.24 billion) for the six months to June, swinging from a GBP462 million loss a year earlier.

   
 
 

BHP Inks Nickel Supply Deal With Tesla

(MORE TO FOLLOW) Dow Jones Newswires

July 22, 2021 06:12 ET (10:12 GMT)

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