EMEA Morning Briefing : Stocks to Waver Ahead of U.S. Jobs Report – Marketscreener.com

MARKET WRAPS

Watch For:

Eurozone Services PMI; EU retail trade, U.S. Employment Report.

Opening Call:

Stocks could hover around flat ahead of U.S jobs data. Dollar weakens, Bitcoin back above $50,000. Oil down, gold edges higher.

Equities:

European stocks could remain around flat at the open Friday as investors await key U.S. jobs data due later.

U.S. stocks rose Thursday after fresh data on the labor market and the trade balance showed that the economic recovery remains on track.

Equities prices have remained on a steady upward march for nearly a year despite all the problems and uncertainty created by the coronavirus pandemic. The S&P 500 has risen 20% this year, up 40% from its 52-week low from last September, and hasn’t seen a single drop of 5% or more since last November.

Where stocks go from here will be heavily dependent on the economy and the Federal Reserve. Jobless claims, a proxy for layoffs, dropped to 340,000, reaching a new pandemic low. The Fed signaled that the labor market’s recovery is a factor in its monetary policy decisions. Separately, new data showed that the U.S. trade deficit narrowed to $70.1 billion in July as American consumers shifted spending toward in-person services and away from goods.

Stocks have pushed higher this week as investors weighed strong corporate earnings and low interest rates against indicators that growth may be slowing in some parts of the world. Money managers say they are awaiting the jobs report for August, due Friday, for more cues on when and how the Fed may taper its bond purchases.

“The confluence of a strong recovery at the same time as very low interest rates and maybe the peak of policy accommodation: if you put those all together, it is a very powerful mix for risky assets,” said Bill Papadakis, macro economist at Lombard Odier. “If you consider the alternatives in which investors could put their money today-with interest rates where they are-equities are often the one option for somewhat better returns.”

On Wednesday, ADP said the private sector created only 374,000 jobs in August, below expectations. That could be a warning sign for Friday’s government jobs report. A weaker economy complicates the Fed’s timeline for raising rates, said Ava Trade analyst Naeem Aslam.

“Investors are considering bad news as good because the economy not recovering quickly may convince the Fed to stick to its soft-money stance,” he said.

Forex:

The U.S. dollar weakened 0.5% to the British pound and 0.3% to the euro, while the WSJ Dollar Index lost 0.3%, as analysts expect nonfarm jobs report to show how the Delta variant may have curbed hiring in August.

“A 400K payroll print…would confirm other evidence pointing to a clear Delta hit to growth,” Pantheon Macroeconomics said.

“September payrolls likely will be depressed too; that’s the last report before the November FOMC meeting.”

Some economists argue that any signs of a slowing recovery would lead the Fed to soften the upcoming tapering, and that in turn would be bearish for the greenback.

G-10 and Asian currencies consolidated ahead of U.S. jobs data due later. The tendency to obsess over this nonfarm payrolls report to gauge a “hit or miss” for Fed taper is undeniable, Mizuho Bank said, noting the bar for a sufficiently dovish shift in terms of inference for the Fed’s monetary policy is high.

In other words, the report is more likely to trigger USD short-covering from any inferences of imminent taper, which may not augur well for stretched emerging markets forex gains, Mizuho Bank added.

Bitcoin rose back above $50,000 for the first meaningful time since mid-May, having briefly surpassed that key level on Aug. 23. “Just as it appeared to be lining up for a correction, bitcoin did what it does best, the complete opposite,” Oanda analyst Craig Erlam said.

However, it is yet to rise above $51,000 so it may “still be a little soon to get excited,” he said.

There doesn’t appear to be a huge amount of momentum behind bitcoin’s current rise but that could change, especially if it does break above $51,000, he said. Bitcoin rose 5.5% to $50,112, according to CoinDesk.

Bonds:

U.S. government bond yields were little changed on Thursday, the 10-year Treasury note yielded 1.293%, compared with 1.301% on Wednesday.

Energy:

Oil fell in early Asian trade as oil producers in the U.S. Gulf restarted operations in the wake of Hurricane Ida, Rystad Energy said.

The energy consultancy said oil producers in the Gulf have managed to restore 16% of the initial production losses and total plant outages are now 80%, compared with 96% at the peak of the storm.

Rystad said that Covid-related demand concerns are also weighing. “Rising cases in India have raised concerns for a third wave there, which could risk the demand recovery that is underway,” it said.

Metals:

Gold nudged higher, with the market’s focus firmly on the U.S. nonfarm payrolls report later. The strength of the data relative to expectations is likely to be a strong catalyst for a move in the precious metal to either $1,850/oz or $1,750/oz, said Oanda.

The drop in iron-ore prices makes steel scrap vulnerable to a further pullback, given that it is the nearest substitute for the raw commodity, Citi said.

Scrap steel prices have only fallen about 8% over the past month versus a roughly 30% drop in iron ore, as recovering steel production outside of China keeps the scrap market tight. But ultimately, scrap prices have to be correlated to iron ore and coking coal, steel’s main ingredients. If prices diverge too far, the sector can shift to produce more steel from iron than scrap.

“The price of scrap cannot disassociate itself completely from iron ore and coking coal costs,” Citi said.

TODAY’S TOP HEADLINES

China to Launch Beijing Stock Exchange to Steer Investment Into Innovation

Chinese President Xi Jinping on Thursday announced the formation of a Beijing Stock Exchange in a bid to channel investment into promising young technology companies as avenues to raise money in the U.S. disappear.

The trading venue will augment an existing equity market in Beijing and specifically host innovative smaller companies, according to Mr. Xi and a statement from the China Securities Regulatory Commission.

China Services-Sector Gauge Tumbled Sharply in August on Covid-19 Disruptions

A private gauge of China’s services sector tumbled sharply in August, as the government’s stringent measures to curb the spread of new coronavirus outbreaks damped activity and demand.

The Caixin China Services purchasing managers index dipped to 46.7 in August from 54.9 in July, Caixin Media Co. and research firm IHS Markit said Friday.

John Kerry Seeks China’s Climate Cooperation, Gets an Earful on Fraying Ties

HONG KONG-Senior Chinese officials told U.S. climate envoy John Kerry that continued U.S. hostility on a range of issues could jeopardize cooperation on fighting climate change, though Mr. Kerry said that working-level talks were productive in the run-up to a November climate summit.

Mr. Kerry, wrapping up a two-day visit to the northern port city of Tianjin, was warned repeatedly by his hosts that climate cooperation couldn’t be kept separate from worsening geopolitical ties between the two countries.

CBO Expects $200 Billion From IRS Boost, Below Biden Targets

WASHINGTON-The Biden administration’s proposed $80 billion boost for the Internal Revenue Service’s budget would yield $200 billion in new revenue over a decade, according to a Congressional Budget Office estimate released Thursday. That figure demonstrates the significant potential from ramping up tax enforcement but is also more than 36% below the administration’s own estimate.

Democrats are planning to expand the IRS as part of the $3.5 trillion legislation they aim to push through Congress this month. They seek to rebuild the tax agency’s ability to enforce the tax code and police tax cheating. That capacity has shrunk dramatically after a decade of flat or declining budgets. The administration’s plan would double the IRS’s staffing and encourage the agency to audit more high-income taxpayers.

Australian Retail Spending Crimped by Lockdowns in July

SYDNEY-Pandemic lockdowns in Australia’s major cities dented retail spending by more than expected in July, adding to expectations for a sharp contraction in the economy.

Retail sales fell 2.7% in July from June, the Australian Bureau of Statistics said Wednesday. The fall was much greater than the market consensus for a 0.2% decline.

Joe Manchin Calls for Pause in Democrats’ $3.5 Trillion Spending Push

WASHINGTON-Centrist Democratic Sen. Joe Manchin of West Virginia stepped up his campaign to cut the price tag of Democrats’ $3.5 trillion healthcare, education and climate legislation, calling for a “strategic pause” in the effort, which Democrats are working to wrap up this month.

Democrats are aiming to get the expansive spending package to President Biden’s desk alongside a roughly $1 trillion bipartisan infrastructure bill that already passed the Senate, while keeping almost all of the party’s lawmakers on board.

Bullish Copper Bets Drop as Once-Hot Market Cools

Speculative investors recently pushed bullish wagers on copper prices to their lowest level in more than a year, a sign that traders are worried that higher supply will cool down this year’s rally.

Net bets on higher copper prices by hedge funds and other speculators slid to 12,956 contracts during the week ended Aug. 24, the lowest level since June 2020 and down roughly 85% from the start of the year, Commodity Futures Trading Commission data show. The CFTC data measure futures and options, which are commonly used by professional investors to wager on price movements and by producers to hedge against volatility.

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09-03-21 0016ET

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