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EMEA Morning Briefing : Stocks to Fall at Open, Investors Look to Earnings, Fed This Week

07/26/2021 | 12:19am EDT


Watch For:

Germany Ifo Business Climate Index; ECOFIN informal meeting of EU finance ministers; OECD Quarterly Employment Situation; Bank of England MPC Member Gertjan Vlieghe speaks; updates from Michelin, LVMH, Galp Energia, Ryanair, Koninklijke Philips.


European stocks are set to open lower to start the week, at the start of a on important week for U.S. earnings and the Federal Reserve's policy meeting due to start Tuesday.

Stocks rallied Friday, pushing the Dow Jones Industrial Average across the 35000 closing milestone for the first time, in a striking rebound from major indexes' pullback earlier last week.

All three major U.S. stock indexes finished Friday at all-time highs after each posted weekly gains of more than 1%.

On a weekly basis, stay-at-home stocks and healthcare companies were among those to power the market higher, in a trading pattern that echoed the markets during the spring and summer of last year. Etsy gained 13% for the week, while Covid-19 vaccine-maker Moderna rallied 22%. Facebook and Twitter both gained roughly 8% or more for the week.

Behind the rally, money managers say, was another round of stellar earnings at American companies. Of the roughly 110 companies in the S&P 500 that had posted results through Thursday for the second quarter, 85% topped analysts' profit forecasts, according to FactSet.

Money managers also say that governments in the U.S. and Europe are unlikely to implement lockdowns that restrict growth, even if rising cases take the shine off the economic recovery.

"You have an earnings season that is going tremendously well," said Seema Shah, chief strategist at Principal Global Investors. The economic outlook isn't as strong as it was three months ago, but "the path ahead is not that negative and certainly there is a lot of buying the dip," she added.

Some money managers said that they expect choppiness in the markets in the months ahead, especially if more data continues to show that U.S. economic growth peaked this spring. Still, most expect that the U.S. economy will keep recovering.

This week will be the most important of this quarter's earnings season - even if later weeks beat it on quantity, it will be nearly impossible to top this slate in terms of dollars and attention.

That is because all of Big Tech will report, and those five companies - Google parent Alphabet, e-commerce and cloud-computing powerhouse Amazon.com, iPhone maker Apple, social-media titan Facebook and software giant Microsoft - can determine the course of the market at this point in history.

Stock movement is unlikely to be determined by the numbers those companies report, especially after the big bounce on Friday; forecasts have been more important for investors as they wait to see how long the current boom in corporate earnings will last. And all five companies have been careful with their forward-looking statements during the COVID-19 pandemic.


USD/JPY's near-term outlook may hinge on Fed Chairman Jerome Powell's views on the economic outlook, IG said.

The two-day U.S. central bank policy meeting is set to start Tuesday. Any cautious views on the economy by Powell is likely to cause dollar-selling, IG said.

Still, any selling of the greenback could be short-lived since the Fed is moving toward policy normalization, it added. USD/JPY's downside may also be limited so long as U.S. stock markets maintain much of their recent gains, IG said.

The U.S. dollar inches higher as Fed tapering looks more imminent. David Jones, chief market strategist at European trading platform Capital.com, told WSJ markets may be unprepared for the removal of monetary stimulus.

"I do not believe that this prospect is priced in, particularly when it comes to the US dollar." Jones said a USD comeback could happen later this year as the ECB promises to keep rates lower for longer. The greenback closed slightly weaker versus the euro on Friday.


Treasury yields rise Friday but the 10-year lost 0.014 percentage point last week to 1.286%. The benchmark has fallen 0.157 p.p. this month. Ally Invest's Lindsey Bell points out this would usually be an ominous sign for the overall market, but the fact that the Fed has been a very active buyer of Treasurys to prop up the economy requires a more careful look.

"When you zoom out, it's hard to be pessimistic," she said, adding that fears of premature tapering could be misplaced as "the Fed has been adamant that it's watching for more improvement in the job market before making moves."

WSJ reports the Fed is set to accelerate deliberations next week over how to scale back their easy-money policies as the recovery runs faster than they had anticipated. The 10-year yield, meanwhile, remains about half a percentage point below its March high.


Oil prices fell in early Asian trade as concerns over the Delta variant's spread in some Asian markets continue to weigh.

The rapid spread of the variant could lead to more local lockdowns and slow the speed of the economic recovery, Commerzbank said.

The recent OPEC+ agreement to increase oil supply is also bearish for crude in the short term, but it shouldn't weigh significantly amid tight fundamentals, Commerzbank said. "Despite the expansion in oil supply, the oil market will remain slightly undersupplied until the end of the year."


Gold rose in early Asian trade as signs of dovishness from the Federal Reserve and the European Central Bank support safe-haven assets, ANZ said.

The precious metal is holding above $1,800/oz, a level at which it previously encountered resistance. Yet, with bond yields rising, demand for the non-interest bearing metal could reduce, ANZ said.

It said that investors are now turning their attention to the upcoming FOMC meeting for indications of when policymakers could scale back asset purchases.

Copper rises in Asian morning trade amid signs of healthy demand from China. Chinese demand for the base metal rose 4.5% on year for the first four months of 2021, Commerzbank said, citing data from the International Copper Study Group.

The German bank noted that the global copper market was oversupplied from January to April, but the surplus was smaller than last year's.

Prices last year found support when the initial surplus eventually turned into a 500,000 ton deficit. It might not happen this year, which could weigh on prices. The three-month LME copper contract roses 1.3% to $9,639.00 a ton.


Economy Week Ahead: The Fed, U.S. GDP, Eurozone GDP

The Federal Reserve's policy meeting and U.S. economic-growth figures are the focus this week.


Senators Try to Finalize Deal on Infrastructure Package

WASHINGTON-Lawmakers pushed to finalize an infrastructure agreement Sunday, but said they were still struggling to resolve a dispute over how much to increase public-transit funding, a snag that could delay their goal of advancing the bill in a Senate vote early this week.

GOP senators had blocked efforts by Democrats to begin consideration of the roughly $1 trillion infrastructure bill on Wednesday, saying too much of the package remained unresolved. Lawmakers in a bipartisan group crafting the legislation said late last week that they hoped to finish in time to reverse that outcome in a second vote in the next few days.

U.S. Set to Push Global Economy Over the Recovery Line

The U.S. economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.

Economists surveyed by The Wall Street Journal estimate that figures to be released Thursday will show that the U.S. gross domestic product rose at an 8.5% seasonally adjusted annual rate in the second quarter. That likely left U.S. GDP-the value of all goods and services produced across the economy, adjusted for seasonality and inflation-above the $19.2 trillion level reached in the final quarter of 2019, the last before the spread of Covid-19 pushed large parts of the global economy to shut down and contract, they say.

China's Digital Yuan Puts Ant and Tencent in an Awkward Spot

HONG KONG-China is calling on private-sector pioneers Ant Group Co. and Tencent Holdings Ltd. to help it develop a state-backed digital currency that threatens the pair's highly popular payment networks.

The People's Bank of China in recent months has accelerated the testing of its digital yuan, putting the operators of Alipay and WeChat Pay in a difficult spot: They have little choice but to take part, despite the risk of eroding the huge user bases they have grown over years. Most of China's 1.4 billion people use at least one of the private services to make mobile payments.

Investors Are Buying American

Investors around the globe are pouring money into U.S. financial assets, a sign of confidence that the world's largest economy remains poised to pull through the Covid-19 pandemic better than many others.

Private-Equity Firms Spark Bidding Wars in U.K.

Blackstone Group Inc., Carlyle Group Inc. and other buyout firms are bidding for U.K. publicly listed companies at a faster rate than they have in years. The reason: Post-Brexit Britain is one of the few markets where investors think big assets are going for cheap.

Apple, Amazon, Tesla Among the Giants Set to Post Results

Corporate giants from Apple Inc. to Visa Inc. are expected to report their financial results over the coming week, giving investors insight into the impact from the Covid-19 pandemic, the Delta variant and increased business costs.

In all, 180 members of the S&P 500 are scheduled to provide quarterly updates starting Monday, including the world's biggest tech companies. The list also includes the restaurant companies McDonald's Corp. and Starbucks Corp., industrial firms such as 3M Co., Boeing Co. and General Electric Co., as well as Ford Motor Co. and the energy heavyweights Exxon Mobil Corp. and Chevron Corp.

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Investment themes
Asset Classes Equities
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Sector Technology
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Weighting Schemes Equal Weight
Index ETF BVP Nasdaq Emerging Cloud NTR Index - USD
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Currency USD
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Date of creation 2019-09-03
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Last one 594.68 M USD
1-month 616.77 M USD
3 months 557.54 M USD
6 months 508.69 M USD
1-year 183.82 M USD
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