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North American Morning Briefing: Retail in Focus With Sales Data and Earnings Eyed

MARKET WRAPS

Watch For:

Retail Sales for July, Industrial Production and Capacity Utilization for July; Canada Housing Starts for July; Canada International Securities Transactions for June; Earnings from Home Depot, Walmart

Opening Call:

Stock futures fell Tuesday, suggesting indexes will ease back from all-time highs, as investors awaited fresh data on the retail and manufacturing sectors.

Markets have ground higher in muted midsummer trading as coronavirus vaccinations allow the resumption of business and social activity in many developed economies. But concerns about the spread of the Delta variant of Covid-19 have sparked jitteriness in recent sessions as it threatens to crimp the economic rebound. Expectations that the Federal Reserve will soon move to ease its stimulus measures are also hanging over investors.

"The Delta variant has hit the confidence of the average American, so we need to watch that for ripple effects on the economy," said David Donabedian, chief investment officer at CIBC Private Wealth. "This is going to be a chronic issue causing some volatility in markets."

Still, investors largely expect any market turbulence to be fleeting, he added.

"You've had significant strengthening in the economy, higher-than-expected corporate earnings, bond yields have stayed low, and the Fed is making noises about tweaking policy, but hasn't yet," said Mr. Donabedian. "Honestly, with those fundamentals creating wind at the back, there hasn't been a really strong case for getting bearish on this market," he said.

Fed policy makers are moving toward an agreement to start scaling back their easy money policies in about three months if the economic recovery continues, The Wall Street Journal reported yesterday. Boston Fed President Eric Rosengren said in an interview he expected to see enough job growth by the September meeting to meet the criteria for reducing bond purchases.

In premarket trading, Tesla fell 1.9%, adding to a more than 4% loss Monday, driven by a probe into its autopilot system.

Investors are awaiting data and earnings that will offer insights into the health of the U.S. retail sector. Retail sales data, due at 8:30 a.m. ET, are expected to have weakened slightly in July as supply chain bottlenecks impact auto sales. Industrial production data is set to be released at 9:15 a.m. ET.

Some of America's biggest retailers are also set to report earnings: Home Depot and Walmart will post results ahead of the opening bell. Lowe's Cos and Target will report on Wednesday.

Overseas, the Stoxx Europe 600 edged down 0.2%. Chinese technology stocks came under pressure again after China took aim at business practices that could harm consumers and limit market competition. New draft guidelines released by China's top market regulator Tuesday attempt to prevent Internet companies from adopting forced exclusivity and blocking competitors' links and apps.

Hong Kong's Hang Seng Index shed 1.7%, while in mainland China, the Shanghai Composite Index slipped 2%. Among individual tech stocks, Tencent Holdings Ltd. retreated more than 4% while Tencent-backed China Literature fell more than 10%. Elsewhere, Japan's Nikkei 225 edged down 0.4%.

Stocks to Watch:

Shares of Corvus Pharmaceuticals were around 7% higher in Monday's late trading session after the company said an IND application submitted by Angel Pharmaceuticals, its partner in China, was accepted by the Center for Drug Evaluation of the China National Medical Products Administration. The IND was for a Phase 1/1b clinical trial of Corvus' CPI-818 to treat certain lymphomas, the company said. The stock finished the day's regular-trading session with a 4.6% loss.

"Angel Pharma licensed the rights from Corvus to develop, manufacture and commercialize CPI-818 in greater China," Corvus said. "Angel Pharma plans to initiate the trial before the end of 2021 and will be responsible for all expenses related to executing the trial in China."

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Shares of bioplastics company Danimer Scientific were 11% higher in Monday's after-hours market, following the release of second-quarter financial results showing higher revenue and the company swinging to a gain in the period. The stock finished the day's regular-trading session with a 14.2% loss. After the bell Monday, Danimer reported second-quarter earnings per share of 39 cents on revenue of $14.4 million, In the year-ago period, the company reported a loss per share of 6 cents on revenue of $11.8 million.

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Dish Network and Sinclair briefly extended the deadline for discussions on whether or not Dish will continue to carry Sinclair's 108 broadcast TV stations. "Sinclair stands willing to continue to negotiate in good faith and to enter into a longer extension to allow for the continued carriage of our channels to Dish's subscribers," said David Gibber, Sinclair's senior vice president and general counsel. Also on the table is the carriage of Sinclair's regional sports networks, which Dish hasn't aired since 2019.

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HighPeak Energy shares fell 12% after hours. The company said it is offering 5 million shares, intending to use proceeds for potential purposes including "accelerating its drilling and development activities given the current price environment and funding further bolt-on acquisitions."

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Pfizer on Monday said it priced a sustainability bond of $1 billion of 1.750% senior notes due 2031. The company said net proceeds will finance or refinance research and development related to the Covid-19 vaccine, capital expenditures connected with the manufacture and distribution of the vaccines and other projects with environmental or social impacts.

The offering is expected to close on Aug. 18. Citigroup Global Markets, Goldman Sachs, J.P. Morgan Securities and Morgan Stanley were offering's joint book-running managers, Pfizer said.

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Spirit Airlines revised third-quarter projections citing recent flight cancellations and fewer bookings and said it would continue to make "tactical schedule reductions" during the rest of the quarter. Spirit said it had cancelled 2,826 flights from July 30 through Aug. 9, which lowered revenue by about $50 million and an estimated additional revenue hit of $80-$100 million more during the quarter given booking trends, which the company attributed in part to rising Covid-19 cases and brand impact due to the operational problems.

Spirit estimated $885-$955 million in operating revenue for the quarter, short of analysts' projected $1.05 billion, according to FactSet. It now expects adjusted operating expenses to reach $1.03-$1.04 billion, up from its earlier view of $1-$1.01 billion. The company revised its third-quarter adjusted Ebitda margin guidance from positive 10% to 15% to negative 8% to negative 1%, which assumes a fuel price of $2.19 a gallon.

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Billionaire hedge-fund manager John Paulson's 2Q investment moves showed a bullish take on energy companies, with new stakes in BP and Shell and Apache parent company APA and raised stakes in Exxon Mobil and Occidental Petroleum. The quarterly securities filing also showed a roughly 11 million share stake in Didi Global and boosted stakes in Barrick Gold and Seabridge Gold along with call options on the SPDR Gold Trust. The filing also showed exits from Michaels and Talend, which Paulson had disclosed as new stakes in the first quarter.

Forex:

The dollar made modest gains against a basket of currencies in European trade, although moves were limited ahead of retail sales data which will be closely watched given last week's weak consumer confidence print and may prevent the currency from advancing, said ING.

The consumer confidence figures, combined with concerns over growing coronavirus cases in the U.S., dampened confidence that the Federal Reserve will start discussing tapering asset purchases later this month, said ING. It sees downside risks to the retail sales data, which would "keep U.S. money market rates and bond yields subdued, with the dollar trading well inside recent ranges."

It expects the DXY Dollar Index to trade in a tight range between 92.50-93.00. This would keep it well below last week's peak of 93.1920.

According to a JPMorgan multiple-choice survey, the dollar will appreciate 1%-4% by year end, which also forecast 10-year Treasurys at 1.5%-1.75% and the S&P 500 at 4600.

"A growing chorus of more hawkish Fed speakers complements strong payrolls data and gives us conviction that additional re-pricing in short-end rates can drive the dollar higher into the fall," said JPMorgan.

Also, September will be a crucial month for U.S. politics, the bank said, and "the upshot is for an infrastructure package that could exceed current JPM estimates and so provide additional cyclical support to the dollar via yet further deficit-financed spending."

Bonds:

The time is likely coming for the Fed to start reducing its bonds purchases, but the expected reduction in demand hasn't stopped a rally in government debt that saw the 10-year yield fall for the second consecutive day on Monday and close at 1.255%, the lowest since August 5 and off nearly half of a percentage point from its March high. Benchmark yields remained largely unchanged in early European trading.

The weakening could stop once a tapering timetable surfaces, something analysts see happening as early as September, with perhaps some signs emerging from Jackson Hole later this month. "Reducing purchases of Treasuries could, all else being equal, put upward pressure on yields," said Tradeweb.

"At the end of the day, it's hard to see rates sitting where they are sitting today given the drumbeat of price input announcements coming in. It's going to be very hard for the Fed to not be more forceful and deliberate about tapering, which is the first step prior to a hike," said David Petrosinelli, a senior trader at InspereX.

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August 17, 2021 05:55 ET (09:55 GMT)

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