European stocks mostly fell on Wednesday as oil prices dropped and investors weighed up a slowing of growth in China. U.S. equity futures were mixed as investors mulled dovish comments from Federal Reserve Chairman Jerome Powell.
Shares of heavily weighted energy stocks fell, with TotalEnergies, BP, Royal Dutch Shell and Repsol stock all down between 1% and 2% each.
Investors were also focused on China economic data, after growth slowed to 7.9% over a year earlier in the three months ending in June as a strong rebound from the coronavirus appeared to be normalizing.
"It is quite apparent to us that the economic growth in China has really peaked and is decelerating," said Daryl Liew, chief investment officer at REYL Singapore Pte. However, "the fact that it wasn't terrible is a positive," he said.
A recent move by Beijing to cut a requirement for banks known as the reserve requirement ratio had raised concerns about whether China's economy was in worse shape than investors thought, Mr. Liew said, and whether that would lead to a change in monetary policy.
Late last week, China said it would lower this reserve ratio, effectively freeing up $154 billion for banks to lend.
Still, Mr. Liew said the latest data showed China's manufacturing, exports and domestic consumption all remained resilient.
Economic data elsewhere showed payrolls rising in the U.K. in June for the seventh straight month. In the largest increase on record, companies added more than 356,000 employees for the period.
In corporate news, share of Spain's Siemens Gamesa Renewable Energy slumped 14% after the renewable energy company said it now expects a fiscal 2021 loss as higher provisions led to a third-quarter operating loss.
The ripple effect saw shares of German energy group Siemens Energy drop 9% after the company said it expects to miss its margin guidance for the full fiscal year, after disappointment from its Spanish subsidiary.
As well, stock in wind energy equipment maker Vestas Wind Systems fell 6%.
A crop of travel stocks were also falling as investors continued to monitor the spread of the highly transmissible delta variant of COVID-19, now present in 111 countries. Spain's Balearic Islands were moved to the U.K.'s amber list on Wednesday, meaning from Monday, residents returning from the popular tourist spot must quarantine unless they have been fully vaccinated against Covid-19. Shares of TUI, easyJet, Aeroports de Paris were down around 3% each.
Stock futures wobbled ahead of fresh data that will indicate the pace of recovery in the labor market and commentary from the Federal Reserve's chief.
The major indexes are hovering near all-time highs on signs of the economy rebounding and stronger-than-expected corporate earnings. But some money managers say stocks may struggle to grind higher in the coming weeks because an uptick in Covid-19 infections could threaten the global reopening.
Concerns over how long higher inflation will linger and its impact on future earnings, as well as worry that the Federal Reserve may reduce its level of support, is also weighing on sentiment.
"Markets were priced for perfection, and now that we have the uncertainty over Fed pullback on policy, it is resulting in this pause," said Derek Halpenny, head of research for global markets in the European region at MUFG Bank. "The positive risk sentiment has definitely faded."
Federal Reserve Chairman Jerome Powell told lawmakers on Wednesday that the central bank wouldn't be in a hurry to start paring monthly asset purchases and that the economy "is still a ways off" from the Fed's goals. He also said the Fed wouldn't hesitate to raise interest rates to keep inflation under control, while repeatedly emphasizing that he still expects price pressures to ease later this year. He is slated to testify before the Senate Banking Committee on Thursday.
Investors will get fresh figures at 8:30 a.m. ET on the number of Americans who applied for first-time unemployment benefits in the week ended July 10. The Fed has said that inflation and the labor market are two key factors it is monitoring to determine monetary policy.
U.S. industrial production, a measure of output at manufacturers, mines and utilities, likely rose again in June, according to economists surveyed by The Wall Street Journal. The data are due at 9:15 a.m.
Banks including Bank of New York Mellon, Morgan Stanley and U.S. Bancorp are slated to report quarterly earnings ahead of the opening bell. UnitedHealth Group will also report earnings before the market opens.
The dollar fell after Fed Chair Jerome Powell said Wednesday that although the economy has improved, reaching substantial further progress is still "a ways off," despite this week's higher-than-expected U.S. inflation data.
"The Fed chair maintained his current stance despite market fears that he might have sounded more hawkish," UniCredit said. Powell reiterated that inflationary pressures should ease later in the year and suggested the Fed was in no hurry to taper bond purchases for now.
However, the fact that the DXY dollar index remains above 92 is "a clear indication that the USD retreat has been modest," UniCredit said.
The pound fell 0.2% against the dollar after Bank of England Governor Andrew Bailey told BusinessLive that he wouldn't be pressured into any decision on raising interest rates, even amid rising inflation pressures.
In bond markets, the yield on the 10-year Treasury note ticked down to 1.311%, from 1.356% Wednesday.
For bond managers, the anxiety about inflation is understandable, said Mark Holman, chief executive officer of TwentyFour Asset Management. "The endless headlines this topic seems to generate may prompt some eye-rolling, but we think it is a debate well worth having," he said.
Holman is of the view that if there is one call investors need to get right in the remainder of 2021, it is this one.
While base effects have had a meaningful influence on recent U.S. inflation data, the potential risk of more durable inflationary pressure is tangible, he said.
TwentyFour AM thinks disinflationary pressures remain largely intact, but it envisages higher inflation than the Federal Reserve currently expects.
The topics that will determine the European Central Bank's July 22 meeting are the new strategy and the debate surrounding inflation, said NordLB.
The German bank's analysts add that the new strategy must be communicated effectively. The ECB presented its strategy a week ago, setting a new inflation target of a symmetric 2% and climate targets.
"The ECB intends to start implementing these targets from next week, so the forward guidance and the PEPP will now unexpectedly be the focus of the upcoming ECB meeting," NordLB said.
The German bank's analysts believe that any transfer of the Pandemic Emergency Purchase Programme--which expires at the end of March 2022--into the regular Asset Purchase Programme would be premature.
Brent prices are likely to rise amid expectations that OPEC+ will soon agree on an oil production deal, easing fears of a price war or insufficient production growth, Goldman Sachs said.
While details of such a deal aren't confirmed, Goldman expects Brent prices to be supported. "All else equal, this would represent $2 to $4/bbl upside risk to our $80/bbl summer and $75/bbl 2022 Brent price forecasts," it said.
Gold edged higher in early European trade.
Copper prices rose after Chinese GDP and industrial production showed continued resilience in the world's second-largest economy. Three-month copper on the LME rose 1% to $9,430 a metric ton. China's economy grew by 7.9% in 2Q in line with economists' forecasts.
The data come after China lowered reserve requirements for banks--a sign some interpreted as suggesting economic growth was slowing faster than expected.
Other base metals also gained with aluminum up 0.2% at $2,522.50 a ton and nickel rising 0.3% to $18,645 a ton.
U.S. Competition Policy Is Aligning With Europe, and Deeper Cooperation Could Follow
The European Union's top antitrust regulator foresees greater alignment with the U.S. on competition enforcement, particularly in the tech sector, amid a broader policy reorientation under the Biden administration.
EU Executive Vice President Margrethe Vestager, the bloc's competition commissioner, said she expects "much more intense work when it comes to technology and the digitized market" between her team and Washington.
NortonLifeLock in Talks to Buy Avast
NortonLifeLock Inc. is in talks to buy cybersecurity firm Avast Plc in a deal that would expand the U.S. company's focus on consumer software.
Avast said late Wednesday that the two were in advanced discussions about a cash-and-stock deal after The Wall Street Journal reported on the talks earlier Wednesday.
Siemens Gamesa Shares Drop on Profit Warning as Siemens Energy Also Slips
Shares in Germany's Siemens Energy AG and its Spanish subsidiary Siemens Gamesa Renewable Energy SA fell sharply in opening trade Thursday after the latter issued a profit warning for the fiscal year, leading Siemens Energy to also lower its outlook.
At 0745 GMT, shares in Siemens Energy traded 8.3% lower at EUR23.65, while Siemens Gamesa was down 14% at EUR22.66.
Daimler Exceeds Market Expectations in Second Quarter
Daimler AG said Thursday that results in the second quarter of the year were above market expectations despite negative effects from the shortage of semiconductor components.
According to preliminary figures, the German car maker's group earnings before interest and taxes came in at 5.19 billion euros ($6.14 billion). This compared with consensus estimates provided by the company of EUR4.12 billion and a prior-year loss before interest and taxes of EUR1.68 billion.
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