Eurozone June unemployment, July manufacturing PMI; Germany June retail trade, July manufacturing PMI; France July Manufacturing PMI; Italy June unemployment, July manufacturing PMI; UK July manufacturing PMI, June Zoopla house price index; updates from HSBC, Heineken, Pearson, MTN Group, AngloGold Ashanti
European stocks appear poised to decline Monday after closing higher last week on positive corporate earnings and better-than-expected economic data. In Asia, major benchmarks broadly advanced; Treasury yields rose; the dollar, oil and gold weakened.
European stocks are expected to decline at the open Monday morning after posting gains last week on upbest corporate earnings. U.S. stock futures are lower after Wall Street closed out its best month since 2020 on Friday.
Investors have taken comfort in recent days from the idea that slowing economic growth might encourage the Fed to raise rates at a slower clip. They also have been encouraged by positive signals during earnings season, as expectations for quarterly profit growth rose over the past month.
But money managers and strategists are also debating whether stocks can hold on to the recent gains in the face of continued monetary tightening and worrisome signals about the economy. Many are skeptical.
"It seems like the market has prematurely declared victory over inflation," said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. "It's completely out of step with what the Fed and Chair Powell laid out this week."
Conflicting economic signals are forcing investors to chart their paths forward without a clear view into how business conditions will develop in the months ahead. Data Thursday showed the U.S. economy shrank for a second quarter in a row, meeting one popular definition of a recession. At the same time, employers have continued to add jobs and the unemployment rate has remained low.
"It's this odd dynamic of having a really strong labor environment with a weaker economic environment," said Michael Vogelzang, chief investment officer at Raleigh, N.C.-based Captrust. "I just don't think anybody can really truly understand where this is going to come out without more data."
The dollar weakened in Asia amid expectations for less aggressive Fed tightening.
Expectations coalescing around a rapidly slowing U.S. economy hint at less aggressive tightening, said SPI Asset Management.
Markets have priced out the more jumbo Fed rate-increase scenario, and the recent pullback in Treasury yields has resulted in the unwinding of long USD positions, SPI added.
Treasury yields were largely higher early Monday after longer-dated Treasury yields ended lower Friday, with the 10-year yield ending at the lowest since April 6 following weaker-than-expected U.S. economic data Thursday and perceived signs of a less hawkish tone from the Fed. Data on U.S. inflation and employment costs was largely taken in stride Friday morning.
The Fed's preferred inflation gauge, the personal consumption index, rose 1% in June, led by higher fuel prices, and rose 6.8% for the year, up from 6.3% in the prior month--the highest rate since January 1982.
"Given that PCE rose 6.8% year-over-year, which was higher than the previous measure of 6.3% and is part of an ever-increasing trend, the Fed has to be concerned that inflation is becoming more entrenched and they are going to need to remain aggressive in raising interest rates," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Corporate investment-grade bonds are offering attractive yields and are an option for investors facing volatility in other markets, said Ninepoint's Mark Wisniewski.
He said investment-grade bonds are paying "5% or more," compared with less than 3% last year. Although speculative grade bonds pay higher yields, "the problem with high yield is that obviously we go into recession of default rate goes up, high yield gets beaten up a little bit more," he said.
Wisniewski said he thinks investment grade credit is the best value out there.
Oil futures declined in Asia amid uncertainty over the outcome of the OPEC+ meeting this week.
The group will reportedly consider keeping oil production unchanged for September, despite calls from the U.S. for more supply, but a modest increase in output is also expected to be discussed, Phillip Securities Research said.
"Whatever the outcome of the meeting, it could have a strong impact on oil prices," said Lukman Otunuga, manager, market analysis, at FXTM.
Goldman Sachs's global head of commodities research, Jeffrey Currie, has touted a strong upside risk for oil on the back of wide, "unprecedented" spread between physical global oil and oil futures prices.
"The physical markets are trading at a substantial premium to the futures market," said Currie.
Physical Brent oil prices on the spot market traded around $112 a barrel Thursday, while "paper oil or financial oil," the front-month September futures contract, traded at roughly $106, with the Brent contract for October delivery at $101.
Delivery of Brent oil one year out is at $90, Currie said. "This doesn't mean that the price of oil is expected to decline--it means consumers are willing to pay a big premium to take delivery of that oil today as opposed to tomorrow," he said.
The price spreads between future deliveries "have never been this high," he said.
Gold fell in Asia as Treasury yields rose, enhancing the allure of USD-denominated fixed-income assets.
Last Friday's continued rise in the U.S. employment cost index won't allow the Fed to signal that its rate-increase cycle is done, and there are risks that Fed speakers can push back against market expectations for an early Fed pivot, said TD Securities.
TD Securities said it expects gold's recent rally to ultimately fade.
Zinc declined in Asian trading after Friday's rally, which was supported by further signs that Europe's energy crisis is putting smelters under pressure, ANZ said.
There were sharp declines in mined and refined output of the metal in 1H, with total production down 12% on year, ANZ said, adding that this has seen inventories held in London Metal Exchange warehouses fall to a two-year low of 70,500 ton.
"Supply-side issues remained in focus on the base metal sector," ANZ added.
Chinese iron-ore futures pushed higher, buoyed by stronger demand expectations.
Prices of the steelmaking raw material could stage a rebound in August amid a brightening macroeconomic outlook and improving sentiment for the industry, Galaxy Futures said.
Expectations for steel mills to ramp up production are increasing thanks to recovering profitability, Galaxy Futures added.
TODAY'S TOP HEADLINES
China's Manufacturing Output Expanded at Slower Pace in July
China's factory activity expanded at a slower pace in July, according to a private gauge, as Beijing's stringent Covid-19 restrictions eased and lockdowns were largely confined to less economically important regions of the country, lowering the economic impact.
The Caixin China purchasing managers index fell to 50.4 in July from 51.7 in June, according to data released Monday by Caixin Media Co. and S&P Global. The 50 mark separates expansion from contraction.
Market for Stakes in Private-Equity Managers Resists Broad Slowdown
Sales of minority interests in private-fund managers have so far this year held up through market turmoil, although buyers have become pickier about which firms they back, people who work on these deals say.
The level of demand for so-called general-partner stakes-non-controlling investments in which the buyer typically gets a portion of a fund manager's profit stream-has exploded in recent years, as more investors seek to capitalize on the rapid growth of the alternative-investments industry.
Falling Food Prices Ease Upward Pressure on Global Inflation
Falling prices for commodities such as wheat or corn are set to slow consumer food price increases, easing pressure on a major driver of global inflation.
But economists warn it is too soon to declare victory. Agricultural markets remain volatile and the continuing war in Ukraine, combined with unusually hot and dry weather in Europe and parts of the U.S., could bring new disruptions to food supplies.
Individual Investors Ramp Up Bets on Tech Stocks
Technology stocks have taken a beating this year. Many individual investors have used it as an opportunity to double down.
The Nasdaq Composite Index-home to the big tech stocks that propelled the market's decadelong rally-has fallen 21% in 2022. Shares of Amazon.com Inc. and the parents of Google and Facebook have suffered double-digit declines as well, stung by higher interest rates and souring attitudes about their growth prospects.
Farm Giants Expect Continued Food-Supply Problems Despite Ukraine Grain Deal
The world's supply of crops is under pressure and likely to remain that way even as grain prices fall, say some of the world's largest agriculture companies.
Russia's invasion of Ukraine is continuing to disrupt supplies from one of the world's top grain-exporting regions. Bad weather affecting big crop-producing regions, including in South America, is also helping to fuel the supply crunch.
War With Russia Enters New Phase as Ukraine Readies Southern Counterblow
After months of Russian forces making painfully slow gains in Ukraine's east, the focus of the war is moving to the south, where a potentially decisive phase of the conflict will play out.
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August 01, 2022 00:32 ET (04:32 GMT)Copyright (c) 2022 Dow Jones & Company, Inc.