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EMEA Morning Briefing: Stocks Set for More Modest Gains With PMIs in Focus

MARKET WRAPS

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Eurozone, Germany, France, U.K. Flash PMI; U.K. Retail Sales; New Car Registrations in Europe; updates from Thales, Lonza, Hermes, Porsche, Signify, Danske Bank, Vodafone, MTN Group, Pepkor, United Utilities

Opening Call:

Europe should start on a positive footing Friday, following Wall Street's gains. In Asia, stocks were steady, along with the dollar, Treasury yields and gold, while oil futures dipped.

Equities:

European stocks are poised for opening gains on Friday, tracking a slightly higher finish on Wall Street.

The major U.S. indexes edged higher in a quiet session on Thursday, keeping them on course to close out the week with gains.

Global stocks have stabilized the past three days after dropping sharply Monday on fears that the spread of the Delta variant could force countries to lock down their economies again. In the U.S., major benchmarks are now back within less than 1% of their all-time highs.

Many investors attribute the market's resilience in part to upbeat results from the latest corporate earnings season. So far, with results in from around a fifth of S&P 500 companies, the majority of corporations have beaten analysts' expectations, according to FactSet.

Asian stock markets were a mixed picture on Friday, with the key benchmarks trading in tight ranges, while U.S. equity futures rose.

"Asian markets look content to ride out Friday with a no-further-bad-news-is-good news rally. That same theme should ensure Europe and U.S. markets finish in much the same manner," wrote Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

Forex:

The dollar was stable against other major currencies, with the Dollar Index holding firm around the 92.85 level.

The U.S. currency changed little against the euro after it became clear the ECB isn't likely to raise rates from near zero anytime soon. Christine Lagarde talked about inflation falling next year, triggering a selloff in the European currency and EUR/USD remained below 1.1800 on Friday.

The Delta variant remains a major risk for economic activity around the globe, in an added potential support for the greenback partially offset by U.S. labor data indicating that a Federal Reserve tightening may not be so imminent, either.

Validus Risk Management Christine Lagarde remarks about inflation don't bode well for the euro. The subdued inflation outlook means any interest rate rise seems a long way off while any changes to the Pandemic Emergency Purchase Programme will be a decision for later this year or the start of 2022, said Validus analyst Ben Carter.

"With lots of talk around the Fed beginning to taper its [asset] purchases before year end, the euro may struggle to gain any ground against the USD over the next few months as Lagarde comments that inflation has picked up but remains subdued."

Bonds:

U.S. Treasurys were weaker in Asia, sending the yield on the 10-year note back above 1.280%, while European yields remained under pressure post-ECB, with the yield on the benchmark 10-year German Bund hovering around -0.423%.

Thursday's statement from the European Central Bank was largely in line with expectations for it to maintain a dovish stance, analysts said.

"This was a bit like old wine in a new bottle; the communication has changed somewhat but in terms of substance the ECB remains very dovish, putting a cap on any tapering speculations," said Carsten Brzeski, global head of macro at ING, in a note.

As for Treasurys, "the unexpected rise in claims has pushed Treasury yields lower as the pace of job creation remains uncertain at this stage in the recovery," wrote BMO strategist Ian Lyngen.

JP Morgan Asset Management said the ECB may maintain its easy policies for some time as it will struggle to reach its inflation goal any time soon.

"Tweaks to the asset purchase programmes are likely to follow later in the year, but we expect these to primarily focus on maintaining the current easy financing conditions, rather than marking a step change in policy," said JP Morgan strategist Jai Malhi.

Fiscal rather than monetary policy may need to do the heavy lifting to break the eurozone out of its low growth, low inflation environment, he said.

Energy:

Oil prices eased lower in Asia after they rose for a third straight session on Thursday to post their highest settlement in more than a week.

Investors are likely concerned over the rising number of Delta variant cases across the globe and its ramifications for energy demand, said Margaret Yang, a strategist for DailyFX.com. Recent strength in the dollar could also exert downward pressure on commodities, she added.

"It has been a very strange week for crude oil, selling off Monday on the good news of the OPEC+ deal and rallying Wednesday despite the bad news of surprise weekly U.S. inventory builds," Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch.

He said the OPEC+ deal, to gradually increase production levels, is "very positive news for the oil market maintaining supply discipline, averting a potential supply war and maintaining a structure to make adjustments as market conditions change."

Metals:

Gold futures barely moved in Asian trading and are expected to trade around $1,800 until next week's FOMC meeting, said OANDA. The debate over when the Fed will taper asset purchases is likely to intensify. Any sign of dovishness from the central bank could potentially push prices above $1,850, added OANDA.

Gold showed "little volatility" after the ECB meeting and U.S. economic data, Carlo Alberto De Casa, market analyst for Kinesis, told MarketWatch. Technically, gold prices are approaching the "low edge" of the $1,790 to $1,820 trading range of the last few days, but are now "locked in an even smaller range," between $1,795 and $1,805, he said.

De Casa said the still sees the current phase as a "consolidation, with decent chances of a new rebound in the next few days if the dollar slows down."

The low volatility in gold "could be seen as a supportive signal," given that "every time price is declining, buyers seem to be ready to support the price," he said.

Copper was almost 1% higher on signs of a recovery in demand for the base metal. U.S. June home sales rose 1.4% on month to 5.86 million, which is "well above pre-pandemic levels," said ANZ, which is bullish for copper given its importance for electrical wiring in homes.

ANZ also pointed to a likely imminent end of the global semiconductor shortage, which should support copper as need for the metal increases. A recovery in demand means "supply issues are coming back into focus."

Iron ore prices were more than 2% lower as steel rebar futures rose on the back of a likely tightening market for Chinese steel.

Steel production cuts in the Chinese provinces of Jiangsu and Anhui mean the market is tightening, said ANZ. The Chinese government has been pressuring down steel production in an effort to lower carbon emissions. Still, the resulting rally in steel prices over reduced supply is likely to be met with falling iron ore prices as need for the steelmaking material drops, said ANZ.

   
 
 

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(MORE TO FOLLOW) Dow Jones Newswires

July 23, 2021 00:29 ET (04:29 GMT)

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