U.S. Personal Income & Outlays for June; U.S. Employment Cost Index for 2Q; U.S. Chicago Business Barometer for July; U.S. University of Michigan Final Consumer Survey for July; Canada Gross Domestic Product for May; Enbridge Inc. 2Q earnings; Procter & Gamble 4Q earnings; Chevron 2Q earnings; Exxon Mobil Corp. 2Q earnings; Caterpillar Inc. 2Q earnings.
Stock futures fell Friday, suggesting that the S&P 500 may end the week on the back foot on its way to close out its sixth straight month of gains.
Futures tied to the S&P 500 declined, pointing to the broad market benchmark erasing the 0.2% rise that it had eked out this week through Thursday. Still, the gauge has advanced 2.8% so far in July, leaving it close to an all-time high.
The monthslong rally in U.S. stocks has grown fragile in recent weeks on signs that the pace of economic growth may be slowing and snarls in the global supply chain for goods are persisting. Lingering concerns over China's clampdown on its internet and technology businesses as well as lofty expectations for corporate earnings has weighed on sentiment this week.
Amazon.com's disappointing sales report late Thursday and weaker outlook rattled Wall Street further, investors say.
"There are so many crosscurrents going on at the moment influencing markets," said Sebastian Mackay, a multiasset fund manager at Invesco. "We've entered a more volatile period for markets, but markets will continue to move higher because we're still seeing economic growth."
Amazon.com shares fell over 6% premarket after the giant retailer reported second-quarter sales that were slightly below analysts' expectations, and signaled that it expects sales to slow further in the current quarter. The results highlighted the challenge of sustaining the unfettered growth it has logged during the pandemic.
Ahead of the market opening, other giant growth stocks including Facebook and Tesla slid more than 1% apiece. Apple, Microsoft and Alphabet edged down by less than 1%. The tech sector makes up a big component of U.S. markets, and a decline in those stocks can weigh on the S&P 500 index.
Another batch of blue-chip corporate earnings are set to be released before markets open, with Caterpillar, Procter & Gamble, Exxon Mobil and Chevron slated to report.
The Commerce Department is also set to release data on June consumer spending and inflation at 8:30 a.m. ET. Investors and central bankers have closely monitored inflation reports and indicators as they assess whether price increases will persist for a prolonged period.
Overseas, the pan-continental Stoxx Europe 600 slid 0.5%, though it remains on track to end July with gains.
The selloff this week in Hong Kong due to the recent regulatory crackdown in China also continued, with the city's Hang Seng Index declining almost 1.4% by the close on Friday. The index has shed 9.9% in July, its biggest monthly drop since October 2018.
The dollar is likely to recover after falling on profit taking following the Federal Reserve's policy announcement on Wednesday, ING said.
The Fed's extra "hawkishness" in signalling that it is moving closer towards tapering asset purchases was largely in the dollar's price and may have prompted some profit taking, ING analysts said. "We wouldn't read too much into the recent USD correction or conclude this is a sign that the greenback's momentum may have peaked already."
The global recovery looks "mixed at best" and China-related sentiment remains volatile due to fears of more regulatory clampdowns, which could boost safe haven flows into the dollar, the analysts said.
Speculators appear to be rebuilding bets on a stronger sterling ahead of the Bank of England's next policy meeting on August 5, ING said.
The pound has recently been buoyed by a fall in U.K. coronavirus cases and is set to end the week as one of the best performing G10 currencies, ING analysts said, noting that GBP/USD has risen about 1.7% since last Friday.
"At the same time...GBP/USD appears to be mostly a function of the dollar's moves: if it looks too early to see a break above 1.1900 in EUR/USD, it equally looks early to see any move above 1.4000 in Cable [GBP/USD]."
The euro stayed higher against the dollar after data showed the eurozone economy grew by more than forecast in the second quarter and inflation accelerated at a faster-than-expected pace in July.
The yield on the 10-year Treasury note ticked down to 1.242% from 1.269% Thursday.
U.S. Treasury yields now discount an "unduly pessimistic view" of the medium- to long-term outlook, Jonas Goltermann, senior markets economist at Capital Economics, said.
Another shock coming along can't be excluded and worries about these possibilities explain at least some of the recent drop in bond yields, he said.
"But absent those risks actually materializing, we continue to expect that Treasury yields will eventually resume their rise," he says. CE forecasts the 10-year U.S. Treasury yield to end 2021 at 1.75% and rise to 2.5% by the end of 2023, Goltermann says.
Financial markets are known to overshoot, and as regards government bond markets, ING is of the view that the move down in yields has been "a lot more" exaggerated than on the way up.
The Fedand the European Central Bank continue to buy $120 billion and EUR100 billion, respectively, in assets per month, and in the best of times, this has a distorting effect on rates, said ING's senior rates strategist Antoine Bouvet. "In illiquid summer months, these distortions are magnified," he says.
Oil prices were lower, though both benchmarks are on course to close out the week with gains of 1% and 1.8%, respectively. Those gains came after upbeat data from the EIA and API earlier in the week showing tightening inventories in the U.S.
That, plus a weaker dollar--dollar-denominated commodities such as oil become less expensive for other currency holders when the dollar drops--are behind oil's gains this week, ING's Warren Patterson said.
A rise in the dollar is behind Friday's gentle losses, and Patterson says that given the some weakness in heavier crude markets, there's little to justify further gains for futures prices.
Gold was mostly flat alongside expectations that the Fed won't abandon its accommodative monetary policies anytime soon, Oanda said, pointing to U.S. economic data that fell short of its expectations.
"A downside surprise in both GDP and jobless claims justifies the Fed's dovish stance," it said. "That should provide a short-term bullish environment for bullion."
Oanda said that if gold can exceed the $1,850/oz resistance level, technical buying could support a strong rally back toward the $1,900/oz.
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