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North American Morning Briefing: Stock Futures Rise to Start the Month

MARKET WRAPS

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U.S. ISM Report on Business Manufacturing for July; Canada markets closed for civic holiday.

Opening Call:

Stock futures rose, signaling gains for major indexes at the start of August as investors cheer strong earnings growth.

Investors are upbeat that the economic expansion will boost corporate profits and enable stocks to keep rising, albeit at a slower pace. Some are cautious that the highly contagious Delta strain of coronavirus, a prolonged spell of inflation and China's efforts to rein in tech firms could lead to bouts of volatility.

"There are a few good reasons why the economy will continue to grow at above normal rates," said Edward Smith, co-chief investment officer at U.K. investment firm Rathbone Investment Management. Consumers are spending freely, companies plan to invest in their businesses and firms are restocking inventories, he said.

"That should enable earnings momentum to stay strong, carrying through to the end of the year," Mr. Smith said.

Among individual stocks, Square dropped 4.9% ahead of the opening bell. The payments company agreed to buy Australia's Afterpay-which allows users to pay for goods in interest-free installments-in an all-stock deal valued at around $29 billion.

Investors said sentiment in broader markets was given a boost by comments from the Chinese securities regulator. The China Securities Regulatory Commission said it would cooperate with Washington on U.S. listings, after the Securities and Exchange Commission said it would increase scrutiny of Chinese companies that aim to sell shares in the U.S.

"Chinese and U.S. regulators shall continue to enhance communication with the principle of mutual respect and cooperation, and properly address the issues related to the supervision of China-based companies listed in the U.S.," a spokesperson for the CSRC told reporters, according to a transcript posted on the regulator's website Sunday.

The comments appear to have buoyed Asian markets after a turbulent few weeks.

The Stoxx Europe 600 rose, led by shares of retailers and makers of cars and car parts.

Among individual stocks, HSBC rose 0.8% in London after the British lender unveiled a forecast-beating quarterly profit of $3.4 billion and said it would resume paying dividends.

U.K. engineering firm Meggitt, which specializes in the aerospace, defense and energy industries, shot up 58% after agreeing to a GBP6.3 billion takeover, equivalent to around $8.8 billion, by Parker Hannifin.

Forex:

The dollar is unlikely to weaken further in coming days due to expected strong U.S. economic data and global recovery concerns supporting safe haven assets, ING said.

"This week's data should, on balance, keep investors upbeat on the U.S. recovery and ultimately help cement the view that the Federal Reserve will soon announce more details on its tapering program (we think this could happen at the Jackson Hole conference) and keep fuelling speculations around a 2022 rate hike," ING analysts said.

Combined with worries about the fast-spreading Delta coronavirus variant derailing the global recovery and the U.S.-China regulatory spat, the dollar won't extend its depreciating trend this week, they said.

The July U.S. nonfarm payrolls report on Friday could provide "new directional momentum" for the euro-dollar exchange rate as the Federal Reserve wants substantial further progress in the labor market before reducing stimulus, Commerzbank said.

The surprisingly positive U.S. economic growth over the past few quarters hasn't been reflected in employment in a satisfactory manner yet, Commerzbank currency analyst Esther Reichelt said.

"From the Fed's point of view this seems to be the restraining factor for U.S. monetary policy so that new information on the situation on the labor market is most likely to trigger significant moves in the USD exchange rates for now."

The Swiss franc will likely stay strong against the euro in the near-term as coronavirus concerns support safe-haven assets and the European Central Bank maintains its loose monetary policy measures, Commerzbank said.

While the Swiss National Bank will keep its easy policy measures in place and use currency interventions to curb excessive franc gains, the ECB is unlikely to lift the euro by scaling back stimulus for the time being, Commerzbank currency analyst Esther Reichelt said.

"Hence, upward pressure on the franc is only likely to ease when the pandemic-related risks are slowly priced out in the coming months, thereby reducing demand for the franc as a safe-haven currency."

Bonds:

In the bond market, the yield on 10-year Treasury notes ticked up to 1.243% from 1.239% Friday.

Forward rates on the EUR money market signal that market participants have again begun pricing in a certain tendency on the part of the ECB to cut interest rates once more, LBBW said but believes that the market is overinterpreting the ECB's dovish signals.

"At this point, we believe the market is overinterpreting the dovish signals given by the ECB in its forward guidance," LBBW's senior fixed-income analyst Elmar Voelker said.

Absent any severe economic setbacks in the coming months, "our view is that it seems unlikely there will be any renewed loosening of monetary policy from the current perspective," he said.

Commodities:

Oil prices were lower after both benchmarks closed out July roughly flat for the month. But the market has come under pressure early Monday with "concerns over the spread of the Delta variant in China," ING's Warren Patterson said.

While the number of cases in China remains low, partial lockdowns and travel restrictions have been imposed in the affected cities, and other countries in Asia like Thailand and the Philippines have made similar moves.

In a signal that Delta concerns aren't as intense as they were a few weeks ago, Brent traders increased bets on rising prices in the most recent reporting week.

LME three-month copper futures rose 0.7% to $9,786 a metric ton, recouping some of last week's losses that came with a stronger dollar.

Supply fears are helping drive copper higher, said ING's Warren Patterson, after the union representing workers at Chile's La Escondida copper mine said its members voted to reject the mine owner's most recent contract offer and go on strike. Codelco's Andina mine, also in Chile, could also strike.

Meanwhile, Shanghai warehouse stocks of copper are falling, and New York traders last week pushed their bets on rising prices to a ten-week high.

London gold prices slipped following the dollar's recent strength.

   
 
 

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August 02, 2021 06:09 ET (10:09 GMT)

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