EuroCOIN indicator of euro area economic activity; EU PPI; OECD CPI.
Stocks could open lower. Dollar weakens after disappointing jobs data. Oil falls. Gold and metals edge higher.
European stocks are set to open lower Thursday as investors remain cautious head of the U.S. jobs report Friday.
In the U.S., the Nasdaq Composite jumped to a record to start the month, building on its strong gains from August.
Stocks have risen over the summer, buoyed by expectations that the economic recovery would enable corporate profits to keep expanding. Investors are broadly optimistic that shares will continue to eke out gains, and Wednesday’s moves continue a historically calm stretch for the market. The S&P 500 hasn’t suffered a 5% pullback since October and has clinched more than 50 fresh highs in 2021.
“Every time you get even a 1% or 2% pullback, that presents the opportunity to ‘buy the dip'” for investors, said Adam Phillips, a managing director at EP Wealth Advisors.
Individual investors in particular have piled into the stock market at a record pace this summer, helping send stocks to repeated records. JPMorgan Chase & Co. strategists estimate that net inflows to U.S. stocks and exchange-traded funds rose to a record of roughly $16 billion in July before another $13 billion poured in during August.
However, Mr. Phillips and other money managers caution that markets are likely to become more volatile in the fall, pointing to catalysts including the curtailment of stimulus programs by the Federal Reserve.
“September can be quite a challenging month for risk assets,” said Suzanne Hutchins, head of real return investments at Newton Investment Management. “Markets are pretty high across the board, valuations are pretty rich.”
Other potential risks on the horizon include China’s crackdown on technology companies and Germany’s federal election in September, Ms. Hutchins said. At the same time, “there is a lot of liquidity that needs to find a home, which is always pretty supportive,” she added.
A private manufacturing gauge in China fell to its lowest level in over a year, suggesting Covid-19 outbreaks led to a decline in activity in August. Investors expect the slowdown will prompt the People’s Bank of China to loosen monetary policy to boost growth, said Sebastien Galy, senior macro strategist at Nordea Asset Management.
The U.S. dollar weakened following a disappointing jobs report. ADP reported Wednesday that the private sector added 374,000 jobs in August, well short of the 600,000 analysts were expecting and raising worries the Delta variant is slowing down labor-market recovery.
The WSJ Dollar Index–which was slightly positive prior to the release of ADP’s employment data–is now 0.1% lower. The dollar softened 0.3% against the euro and strengthens slightly against the yen.
The euro’s current gains could extend above $1.19, from $1.1842 currently, on the prospect of the European Central Bank paring back stimulus provided that risk sentiment is stable, Saxo Bank said.
ECB members Klaas Knot and Robert Holzmann have called for scaling back pandemic bond purchases soon, which isn’t surprising given their usual stance but European bond yields reacted favourably to this development, Saxo Bank forex strategist John Hardy said.
“These moves despite the rather moribund action in U.S. Treasuries is a distinct positive support for the euro.” Meanwhile, the market has started to price in higher odds of the ECB raising interest rates in 2025, Hardy said.
Treasury yields traded mixed Wednesday, after a report on U.S. private-sector employment came in weaker than forecast. The 10-year Treasury note yield was at 1.301%, compared with 1.303% on Tuesday.
Oil fell in early Asian trade amid expectations of demand weakness due to the Covid-19 flare-ups.
Crude benchmarks gained slightly overnight after OPEC+ ratified its original plan of incremental monthly increases of 400,000 barrels a day, balking on a U.S. government request to add even more crude to the global market.
But “what is not so certain…is whether demand will be able to grow as quickly as OPEC+ and the market predicts, given the risk of new lockdowns to fight the unresolved Covid-mutant spread,” Rystad Energy said.
Offshore oil and gas production in the Gulf of Mexico is slowly starting to return after four straight days of being nearly 100% shut down due to Hurricane Ida.
The Bureau of Safety and Environmental Enforcement says 80% of offshore crude-oil production, or 1.5M bpd, is still shut, while 83% of natural gas production remains halted. Both of those percentages are an improvement from yesterday when 94% of oil and 95% of gas production were offline.
Gold nudged higher in early Asian trading, ahead of the U.S. nonfarm payrolls report due Friday. Gold seesawed as investors assessed a slew of U.S. economic data that indicated a strong outlook for the economy but troubles in hiring, Oanda said, adding the precious metal will likely continue consolidating until Friday’s jobs data.
Copper edged lower in early Asian trade after Chinese data indicates the country’s manufacturing activity contracted for the first time since April, ANZ said.
The bank noted the Caixin manufacturing PMI fell to 49.2 in August compared with 50.3 in July, likely signaling weakening copper demand. This exacerbates earlier price weakness after China released a combined 150,000 tons of copper, aluminum and zinc from its strategic reserves into the market, ANZ said.
The three-month LME copper contract fell 0.1% to $9,325.0/ton.
TODAY’S TOP HEADLINES
OPEC Alliance Keeps Gradual Production Increases, Despite U.S. Request
The Organization of the Petroleum Exporting Countries and a group of Russia-led producers said they agreed to continue increasing oil production in measured steps, resisting for now recent U.S. pressure to open the group’s spigots wider.
In July, the OPEC-Russian alliance agreed to gradually bring back millions of barrels a day of production that they had bottled up at the start of the Covid-19 pandemic.
Fed’s Bostic Warns Eviction Surge Could Weigh on Recovery
Federal Reserve Bank of Atlanta President Raphael Bostic said Wednesday that ending protections against evictions and a slow rollout of aid for renters owing money to landlords could create problems for the economic recovery.
“The eviction moratorium has been very helpful to date in preventing people from being moved out of their homes in the middle of a pandemic,” Mr. Bostic said in a virtual appearance, referring to a recently ended eviction ban that shielded financially distressed renters.
China Increases Relending Quota by CNY300 Bln to Stabilize Growth
China’s State Council said it would increase the central bank’s relending quota by 300 billion yuan ($46.4 billion) this year to support struggling small businesses and keep economic growth within a reasonable range.
The cabinet at its weekly meeting on Wednesday said it would step up policy support for small companies which have been squeezed by rising commodity prices. Increasing the relending quota means the central bank can lend more money to Chinese banks which can subsequently be lent to businesses.
Moderna Says Vaccine Contaminant in Japan Was Stainless Steel, Sees No Safety Issue
TOKYO-The foreign substance detected in some vials of Moderna Inc.’s vaccine in Japan was stainless steel and it isn’t believed to affect the vaccine’s safety or efficacy, Moderna and its Japanese partner said.
Moderna and Takeda Pharmaceutical Co. were reporting the initial results of their investigation after Japan last week recalled three lots of the Moderna vaccine containing a total of 1.63 million doses, citing unspecified contamination.
American Factories Will Keep Humming
Even if Covid-19’s resurgence cuts into Americans’ penchant for spending, factories will probably keep on humming. That assumes, of course, that they can get the parts and labor.
The Institute for Supply Management on Wednesday said that its index of manufacturing activity came in at 59.9 in August, up a bit from July’s 59.5, keeping at what is historically a high level. Anything over 50 indicates expansion.
SEC Sues BitConnect and Founder, Alleging Massive Cryptocurrency Scam of World-Wide Investors
WASHINGTON-Regulators on Wednesday sued an offshore company that allegedly conducted one of the biggest scams ever involving cryptocurrencies.
The Securities and Exchange Commission accused BitConnect and its founder, Satish Kumbhani, of a $2 billion fraud that misused bitcoin raised from investors world-wide. An American promoter for the scheme, Glenn Arcaro, pleaded guilty in federal criminal court over his role in fleecing U.S. investors.
SEC Considers Asking Funds for Criteria Used to Tout Sustainability
WASHINGTON-Asset managers that say they allocate capital to environmentally or socially responsible companies might eventually have to back up those claims.
Wall Street’s main regulator is considering whether to require fund managers to disclose the criteria and data they use to apply labels such as green, low-carbon or sustainable. Securities and Exchange Commission Chairman Gary Gensler said Wednesday he has asked his staff to make recommendations for new disclosure requirements for such funds and expects to seek public comment on the matter later this year or in early 2022.
Surging Covid-19 Cases Hammer Asian Factories
HONG KONG-Factory activity faltered across Asia in August, with a resurgence in Covid-19 infections adding to global supply-chain disruptions and confirming fears of a slowdown in the region’s economic recovery.
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