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North American Morning Briefing: Stock Futures Edge Up After Nasdaq Hits Record

06/23/2021 | 06:08am EDT

MARKET WRAPS

Watch For:

U.S. Current Account for 1Q; U.S. New Home Sales for May; EIA Weekly Petroleum Status Report; Canada Retail Trade for April.

Opening Call:

Stock futures ticked higher Wednesday, signaling that the major indexes may inch toward all-time highs ahead of data on growth in the service and manufacturing sectors.

Stocks and bonds have steadied after the Federal Reserve whipsawed markets last week by signaling it might raise interest rates sooner than previously expected to ward off higher inflation. A scramble to adjust portfolios in response to that guidance has subsided, investors say. Fed Chairman Jerome Powell said Tuesday he has "a level of confidence" inflation will abate, bolstering the view that it will be many months yet before the central bank shifts its monetary policy stance.

"We should expect markets to show a heightened sensitivity to economic data from here on, now that investors have embraced the idea the monetary cycle is turning," said Paul O'Connor, head of the multiasset team at Janus Henderson Investors. "We should expect markets in the months ahead to be more volatile and more uncertain than they have been maybe over the past six months."

Surveys of purchasing managers at U.S. manufacturing and service firms are due to be released at 9:45 a.m. ET. Analysts polled by FactSet expect them to show the economy has continued to grow at a fast clip in June.

Data on sales of new homes are scheduled for 10 a.m.

Some investors have viewed the shake-up that followed the Fed's pivot as an opportunity to add to positions in value stocks and commodity markets such as copper. Sectors such as banking and energy, along with industrial metals, slid last week after benefiting from bets on higher growth and inflation for much of the year.

"There was an overreaction in bond yields and, as a second derivative of that, in bank stocks," said Matthew Quaife, heat of multiasset investment management for Asia at Fidelity International. "Growth will be pretty strong over the medium term."

Forex:

The dollar was broadly steady, edging higher against the euro and yen but falling against riskier commodity-linked and emerging-market currencies after Federal Reserve Chair Jerome Powell played down inflation risks. While acknowledging short-term risks of higher inflation, he stressed Tuesday that these would be temporary.

"After the hawkish surprise from the Fed last week, this should further help to stabilize the market and translate into a supportive environment over the summer for those cyclical currencies where local central banks have opted for meaningful tightening cycles," said ING.

These include the Brazilian real, Russian ruble, Hungarian forint and Norwegian krone, it said.

Bitcoin rose 3.3% from its 5 p.m. ET Tuesday level to $33,973.61. The cryptocurrency briefly dropped below $30,000 on Tuesday, erasing all of its gains for 2021.

The euro could struggle to rise above key psychological resistance at $1.2000, said Steen Jakobsen, chief investment officer at Saxo Bank.

A level of $1.2100 or higher would be needed to indicate a reversal of the euro's recent selloff. The rebound in the euro from last week's 2.5-month low of $1.1847 "looks modest," he said.

"The growing theme of tightening central banks globally sees little anticipation that the European Central Bank is about to send any strong message on that front."

Bonds:

The yield on 10-year Treasury notes ticked up to 1.472% from 1.471% on Tuesday.

The U.S.-German 10-year government bond yield spread doesn't seem to be correctly pricing a disparity between central-bank support in the eurozone and the U.S., UniCredit said.

The Italian bank expects this spread to widen in the coming months to reflect the difference in central-bank support, especially once the U.S. Fed starts a formal discussion on tapering of its asset purchases.

In the near term, UniCredit expects Bund yields to remain at current levels on the back of the European Central Bank's continuing accelerated pace of asset purchases, while strong data are likely to drive 10-year U.S. Treasury yields higher and the 10-year UST-Bund spread wider.

The 10-year UST-German Bund yield spread is just below 169 basis points, according to Tradeweb.

Commodities:

Oil prices rose after data showed U.S. crude oil stockpiles shrank last week. API's weekly data on U.S. oil inventories released Tuesday showed stocks fell by 7.2 million barrels last week. The decline was larger than the consensus estimates, said Helge Andre Martinsen, senior oil analyst at DNB Markets.

Focus is on OPEC+'s July 1 meeting, amid reports that some cartel members are considering advocating increasing supply.

"A potential supply hike of 0.5 million barrels a day from OPEC+ for August, will probably be too little too late, as the oil market will continue in undersupply and further erode OECD oil inventories," he said.

Copper prices rose as fears of tightening from the Federal Reserve ease while China outlines plans to sell its metals reserves.

Three-month copper on the LME was up 0.9% at $9,353.00 a metric ton. China's state reserve body said it would auction 20,000 tons of copper, 30,000 tons of zinc, and 50,000 tons of aluminum. The details helped ease uncertainty about the planned sales which had been weighing on metals markets.

Gold inched higher in early European trade. However, OCBC noted the precious metal may break the crucial support at $1,770 this week if U.S. Fed officials produce more hawkish rhetoric in the coming days.

TODAY'S TOP HEADLINES

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Fed's Powell Plays Down Inflation Threat

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(MORE TO FOLLOW) Dow Jones Newswires

06-23-21 0607ET

Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. 0.06% 146.92 Delayed Quote.10.72%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.35% 0.6192 Delayed Quote.-1.34%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.51% 0.7258 Delayed Quote.-5.16%
BIOGEN INC. -0.51% 291.71 Delayed Quote.19.74%
BITCOIN - EURO -0.06% 36397.61 Real-time Quote.61.73%
BITCOIN - UNITED STATES DOLLAR -0.17% 42631.27 Real-time Quote.55.13%
BRITISH POUND / EURO (GBP/EUR) -0.22% 1.1661 Delayed Quote.4.45%
BRITISH POUND / US DOLLAR (GBP/USD) -0.37% 1.36698 Delayed Quote.0.34%
CANADIAN DOLLAR / BRAZILIAN REAL (CAD/BRL) 0.68% 4.2173 Delayed Quote.2.67%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.25% 0.674459 Delayed Quote.4.53%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.01% 0.7897 Delayed Quote.0.57%
DJ INDUSTRIAL 0.10% 34798 Delayed Quote.11.93%
EURO / BRAZILIAN REAL (EUR/BRL) 0.47% 6.2556 Delayed Quote.-1.87%
EURO / NORWEGIAN KRONER (EUR/NOK) -0.04% 10.06207 Delayed Quote.-3.93%
EURO / US DOLLAR (EUR/USD) -0.18% 1.1718 Delayed Quote.-3.88%
INDIAN RUPEE / EURO (INR/EUR) 0.18% 0.011559 Delayed Quote.2.98%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.01% 0.013548 Delayed Quote.-1.04%
JANUS HENDERSON GROUP PLC -0.19% 41.88 Delayed Quote.28.82%
LONDON BRENT OIL 0.94% 78.01 Delayed Quote.46.73%
NASDAQ COMP. -0.03% 15047.699032 Real-time Quote.15.58%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.73% 0.7012 Delayed Quote.-1.60%
ROBINHOOD MARKETS, INC. -2.24% 44.91 Delayed Quote.0.00%
S&P GSCI ALUMINUM INDEX -0.52% 185.37 Delayed Quote.49.19%
S&P GSCI CRUDE OIL INDEX 0.69% 405.4586 Delayed Quote.48.97%
S&P GSCI INDUSTRIAL METALS INDEX 0.18% 486.9438 Delayed Quote.27.46%
US DOLLAR / BRAZILIAN REAL (USD/BRL) 0.66% 5.3377 Delayed Quote.2.10%
US DOLLAR / EURO (USD/EUR) 0.18% 0.853388 Delayed Quote.4.04%
WASHINGTON FEDERAL, INC. 1.61% 33.42 Delayed Quote.29.84%
WTI 0.93% 73.961 Delayed Quote.49.32%
XPENG INC. -3.99% 35.34 Delayed Quote.-17.49%
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