MARKET WRAPS
Watch For:
Oracle Corp. 1Q earnings.
Opening Call:
Stock futures rose Monday, pointing to major indexes recovering some ground following the S&P 500's worst weekly performance since February.
Stocks are rebounding on investors' optimism that the Federal Reserve and the government will continue offering stimulus measures. That is because U.S. lawmakers are trying to push ahead this month with a proposed $3.5 trillion legislation for additional spending on healthcare, education and climate. But money managers say they are also waiting to assess if fresh data Tuesday shows that inflation remains elevated, and how that may impact the Fed's easy-money policies.
"I do believe that the bulls have a little more ammunition than the bears: fiscal support still remains on tap, activity indicators are strong," said Gregory Perdon, chief investment officer of Arbuthnot Latham. "Risk is still on."
The current level of yields is signaling that bond investors see higher inflation levels as transitory, according to Georgina Taylor, a multiasset fund manager at Invesco. "There's not enough inflationary pressure to really feel a reassessment of nominal growth over the long term," she said.
In Asia, Hong Kong's Hang Seng Index dropped by the close of trading, with technology stocks among notable decliners in the city.
Concerns about tensions between the U.S. and China had dented investor sentiment, said Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong. Over the weekend, The Wall Street Journal reported that the Biden administration is targeting Beijing's widespread use of industrial subsidies in an effort that could lead to new sanctions on Chinese imports and further strain U.S.-China relations.
Forex:
The dollar rose to a two-week high against a basket of currencies as investors look ahead to the U.S. Federal Reserve's Sept. 22 meeting amid prospects that asset-purchase tapering will begin this year.
UniCredit said the dollar has been helped higher after Philadelphia Fed President Patrick Harker said he favored tapering sooner rather than later.
This week will see a raft of key U.S. data, including CPI inflation, retail sales and industrial production.
Strong data may help the dollar but weaker-than-expected figures should have a bigger impact if they "raise uncertainty about the timing of the Fed's tapering process," UniCredit said.
Bitcoin traded below $45,000, slipping 0.6% from its 5 p.m. ET level on Friday. Last week, it rose above $52,500.
Bonds:
The yield on the benchmark 10-year U.S. Treasury note edged up to 1.344% from 1.340% on Friday.
Morgan Stanley expects the spread between U.S. and German government bond yields to widen, as the policy divergence between the Fed and the European Central Bank increases, said strategists Alina Zaytseva and Lorenzo Testa.
They expect the Fed's September 22 meeting to be one of the catalysts for the move, with 2024 dots revealed for the first time. The 10-year U.S. Treasury-German Bund yield spread is 166 basis points, according to Tradeweb.
At last week's meeting, the ECB said it would shift to a "moderately lower" purchase pace under the Pandemic Emergency Purchase Programme in the coming quarter. ECB purchases will still be higher than at the beginning of the year, however, while the Fed is expected to start tapering asset purchases later this year.
Citigroup expects eurozone government bond yield spreads stable near-term, while vulnerability might emerge for the long-term, strategist Jamie Searle said.
The fact that the ECB's pandemic emergency asset purchases will be lowered only moderately versus the peak in the remainder of the year will provide comfort to intra-eurozone spreads, and so will hopes that the constraints of the regular Asset Purchase Programme might be adjusted, he said.
On the longer-term, "however, there is still likely to be a cliff in asset purchases next spring and the ECB appears to be slowly shifting tactics from capping EMU spreads to instead anchoring core rates, precisely because such an approach is less reliant on asset purchases," Searle said.
Commodities:
Oil rose, with prices extending their gains over the past week. While prices have lacked strong direction over the past week, data showing strong U.S. gasoline demand over the Labor Day weekend gave prices a boost on Friday.
Meanwhile, 49% of U.S. Gulf of Mexico production remains closed after Hurricane Ida, DNB Markets' Helge Andre Martinsen said. Still, Iran's signaling that it is ready to return to nuclear talks could put pressure on prices in the coming weeks. The market is awaiting OPEC's monthly market report, due later Monday.
Gold prices were listless as a stronger dollar dents the safe-haven's appeal. The U.S. dollar index rose 0.2% to 92.80, diminishing appetite for dollar-denominated gold among holders of other currencies.
With gold's price performance lackluster and the Fed expected to soon begin tapering its stimulus measures, speculative investors have been cutting back heavily on their gold exposure, TD Securities said.
Investors "are anticipating higher real rates and less capital to flow into the yellow metal, as the Fed prepares to start tapering its aggressive asset purchasing program," the bank said in a note. "Robust equity market performance also likely persuaded funds to ease up on their gold exposure," TD said.
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09-13-21 0608ET
