Stocks gained on Monday, with investors at least temporarily looking past concerns over the growth outlook and ahead to more second-quarter earnings. 

The S&P 500, Dow and Nasdaq each eked out record intraday and closing levels, shaking off earlier declines. 

Over the past several weeks, investors have been appraising the likelihood that the spread of the Delta variant would derail the economic recovery and curb the rally so far for the year-to-date in U.S. equities. These concerns set off a rout last week, with stocks dropping by the most since October before ending the week at record levels.

However, some strategists suggested the latest stretch of virus-related volatility in markets would prove temporary.

“We think the Delta variant should pose a minimal risk to the U.S. equity market,” Goldman Sachs U.S. equity strategist David Kostin wrote in a note Monday. “From an economic perspective, widespread vaccinations and strategies focused on containment suggest limited medical and economic downside even if infections continue to rise.”

“From a flows perspective, robust household cash balances and corporate buyback authorizations should continue to support inflows for equities, increasing the likelihood that market participants perceive a pullback as a buying opportunity,” he added.

Later this week, investors will hear from Federal Reserve officials over the path forward for monetary policy, which will likely be informed by the increased concerns over the Delta variant and peaking economic growth rates. Many are betting that these downside risks will overshadow worries over inflation, leaving central bankers in a wait-and-see mode before announcing any changes to their crisis-era asset purchase program and near-zero interest rate policies. 

“[Federal Reserve Chair Jerome] Powell’s mid-July Congressional testimony raised the prospect that the statement would introduce an asymmetric policy bias: standing prepared to adjust policy if the Fed ‘saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal,'” JPMorgan economist Michael Feroli wrote in a note. 

“Since that testimony the rise of the delta variant has injected some downside growth risks into the outlook, and this should help the doves argue for retaining the current symmetric policy bias,” which would focus on creating conditions to maximize employment while also keeping inflation in check, he added. 

Traders are also set to focus on a packed schedule of corporate earnings results this week, which will include mega-cap technology companies like Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) in addition to a host of other companies including UPS (UPS), 3M (MMM), Starbucks (SBUX) and Boeing (BA). 

Earnings season so far has been especially strong, helping support the indexes’ march to new all-time highs even in light of recent economic concerns. So far, 24% of companies in the S&P 500 have reported second-quarter results, and of these, 88% have topped Wall Street’s earnings per shares estimates, according to an analysis from FactSet as of Friday. The blended earnings growth rate for the blue-chip index, which includes both companies’ reported growth rates and the estimated rates for the companies have yet to report, stands at 74.2%, which would be the highest since the fourth quarter of 2009.

Emily McCormick·Reporter

Hedge funds with bullish bets on the Australian dollar are counting on strong inflation data this week to help arrest a slide in the currency that’s taken it to an eight-month low.

Figures on Wednesday are expected to provide cues on the health of the economy after half of Australia’s population went back into lockdown to contain the delta coronavirus outbreak, fueling concern that growth may contract in the current quarter.

Pessimism over the economy and the Reserve Bank of Australia’s willingness to leave rates unchanged have already taken a toll on the Aussie, dragging it to 0.729 last week, lowest since November. Hedge funds are on the hook, with net long positions of 23,578 contracts on the currency as of the week ended July 20, according to Commodity Futures Trading Commission data.

Technical indicators show that more losses may be in store for the Aussie. The currency bearishly breached support around 0.74 per dollar, opening up the door for a decline toward the 0.72 level or even lower.

“We forecast AUD/USD will be trading near 0.74 by the end of September, but given the emerging risks and AUD/USD’s normal trading ranges, the Australian dollar could temporarily dip below 0.70,” said Kim Mundy, currency strategist and international economist at Commonwealth Bank of Australia in Sydney.

The currency could receive a boost if inflation picks up pace, prompting investors to bring forward RBA rate hike bets as the economy had been expanding strongly before the outbreak. Data on Wednesday is expected to show consumer price inflation rising 3.7% year-on-year in the second quarter from 1.1% before, according to a Bloomberg survey of economists.

Still, it’s unlikely to be a straight road ahead for the Aussie if New the Zealand dollar’s recent moves are anything to go by. The kiwi fell to an eight-month low last week despite the nation’s higher-than-expected second-quarter inflation reading as jitters over global growth prospects continues to dominate global risk sentiment.

Inflation took a toll on the U.K. public finances last month, driving interest payments on government debt to unprecedented levels.

The Treasury paid 8.7 billion pounds ($11.8 billion) in interest in June, the most for any month since records began in 1997, the Office for National Statistics said on Wednesday. The 6 billion-pound increase from a year ago was due to higher retail-price inflation pushing up the cost of servicing index-linked gilts.

The figures indicate the constraints on Chancellor of the Exchequer Rishi Sunak, who pushed government borrowing to a peacetime record to protect workers out of a job during the pandemic. While the overall deficit is coming in lower than the Office for Budget Responsibility estimated in March, rising debt costs threaten to absorb any windfall.

“The spike in debt interest payments won’t derail the deficit reduction, but risks remain,” says Michal Stelmach, senior economist at KPMG U.K. “We are not out of the woods yet with the recent surge in Covid-19 cases putting some parts of the economy at risk of further restrictions later in the year and the uncertainty around the impact of phasing out the furlough scheme on unemployment.”

Pandemic Debts

Borrowing is still financing almost 1 in every 4 pounds of public spending.

The retail price index surged to 3.9% in June from a year ago in June, up from as little as 0.5% in the summer of last year when the economy was starting to open up from the first coronavirus lockdown. While the Bank of England targets the consumer price index, which has showed a slightly less acute increase, government debt along with student loans and rail fares track the RPI.

A quarter of the government’s debt, about 448 billion pounds, is linked to inflation indexes, the Debt Management Office says. The OBR estimates that if inflation hits 5%, interest costs would increase by up to 9 billion pounds because of index-linked gilts.

OBR Chair Richard Hughes said the Treasury should reconsider the portion gilts it sells that are index-linked, noting that inflation remains a risk to the public finances.

“You need to go in there with your eyes open and understand what risks are developing,” Hughes said at a hearing of lawmakers on the Treasury Committee in Parliament on Wednesday “In particular if you see rising inflation in the context of stagnant growth that’s potentially a big risk.”

Inflation is “no longer a very effective way to reduce the debt-to-GDP ratio,” the OBR said in a report earlier this month outlining risks to the public finances. It noted the U.K. has a “relatively high” proportion of index-linked debt as well as shorter maturities that are a “by-product” of the BOE’s bond-buying program to stimulate the economy.

The overall deficit came in lower than officials forecast in the first three months of the fiscal year as an unexpectedly strong economic rebound absorbed workers who were receiving benefits.

“I’m proud of the unprecedented package of support we put in place to protect jobs and help thousands of businesses survive the pandemic, and that we are continuing to support those who need it,” Sunak said in a statement. “It’s also right that we ensure debt remains under control in the medium term, and that’s why I made some tough choices at the last budget to put the public finances on a sustainable path.”

The strength of the economic rebound from the deepest slump in 300 years has taken most forecasters by surprise. BOE Deputy Governor Dave Ramsden predicting the economy could even return to its pre-Covid size as early as the current quarter. For the public finances, the pickup is translating into more tax revenue from newly employed workers and less spending on pandemic support such as furlough payments.

The deficit totaled 69.5 billion pounds between April and June. That’s well below the 92.7 billion pounds forecast by the OBR at the time of the budget in March. Tax revenue surged by 18% in June from year ago, while spending climbed 3.1%.

Wall Street ended sharply higher on Tuesday, rebounding from a multiday losing streak as a string of upbeat earnings reports and revived economic optimism fuelled a risk-on rally.

The Dow Jones Industrial Average rose 549.95 points, or 1.62 percent, to close at 34,511.99; the S&P 500 gained 64.57 points, or 1.52 percent, to 4,323.06; and the Nasdaq Composite Index added 223.89 points, or 1.57 percent, to 14,498.88.

The S&P notched its first advance in four days as well as registering its strongest day since March. The Nasdaq posted its first gain in six sessions.

“It’s a buy-the-dip mentality coming into the market,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

Economically sensitive small caps and transports outperformed the broader market.

Benchmark US Treasury yields bounced back from five-month lows, in the wake of their biggest single-session decline since February in the prior session. This helped boost rate-vulnerable banks by 2.6 percent.

“The economically sensitive stocks are up today,” Carlson added. “When the 10-year [Treasury yield] goes down in a short period of time, that typically doesn’t happen with an economy that’s supposed to be growing. Firming in the 10-year [yield] indicates that perhaps the economy isn’t going to be falling off a cliff.”

Mounting concerns over the highly contagious Delta variant of COVID-19, now responsible for the majority of new coronavirus infections, have sparked selloffs in recent sessions as worldwide coronavirus vaccination efforts gather momentum.

“Things like the Delta variant can certainly impact in the margins,” Carlson said. “It doesn’t take a whole lot of fear in some investors to create what we saw yesterday.”

Of the 11 major sectors in the S&P 500, all but consumer staples closed green. Industrials fared best, rising 2.7 percent.

Second-quarter reporting season has hit full stride, with 56 of the companies in the S&P 500 having posted results. Of those, 91 percent have beaten the consensus, according to Refinitiv.

Analysts now see annual S&P earnings growth of 72.9 percent for the April-June period, a significant improvement over the 54 percent growth seen at the beginning of the quarter.

Halliburton Co rose 3.7 percent after a bounce-back in crude prices boosted oilfield services demand, leading the company to post its second consecutive quarterly profit.

Peloton Interactive Inc advanced 6.7 percent after announcing it would provide UnitedHealth Group’s fully insured members free access to its live and on-demand fitness classes.

Moderna’s stock dropped 2 percent in a volatile session on Tuesday, with the COVID-19 vaccine maker the most heavily traded company on Wall Street ahead of its debut in the S&P 500 on Wednesday.

Netflix Inc shares dipped more than 3 percent in after-hours trading after its forecast missed estimates.

Shares of Chipotle Mexican Grill gained over 2 percent post-market after its earnings and revenue beat the consensus.

Advancing issues outnumbered declining ones on the New York Stock Exchange by a 4.44-to-1 ratio; on Nasdaq, a 3.59-to-1 ratio favoured advancers.

The S&P 500 posted 41 new 52-week highs and no new lows; the Nasdaq Composite Index recorded 45 new highs and 76 new lows.

TOKYO (Reuters) – Japan’s core consumer prices fell for the ninth straight month in April as a record slump in cellphone fees offset rising energy prices, suggesting that weak demand and higher costs will weigh on a fragile economic recovery.

Separate data showed firms facing rising input costs and a slower expansion in factory activity in May, highlighting risks to an economy heavily reliant on the manufacturing sector.

The data underscores the challenge policymakers face in combating a resurgence in COVID-19 infections without hobbling an economy already lagging other major trading partners emerging from the pandemic-induced slump.

“Inflation fell in April but that was almost entirely due to a plunge in mobile phone tariffs,” said Tom Learmouth, Japan economist at Capital Economics.

“Looking past temporary distortions, we think underlying inflation will continue to rise a bit further, though unlike in some other advanced economies.”

The core consumer price index (CPI), which excludes the effect of volatile fresh food costs, fell 0.1% in April from a year earlier, smaller than a median market forecast for a 0.2% drop, government data showed on Friday and in line with March’s decline.

A record 26.5% in cellphone charges knocked 0.5% off core CPI, the data showed, as carriers heeded Prime Minister Yoshihide Suga’s calls to ease the burden on households.

By contrast, energy prices rose 0.7% in April, marking the first gain since January 2020 due to recent rises in crude oil costs and the base effect of last year’s slump.

Any decline in manufacturers’ profits would be a huge risk to firms’ capital expenditure plans and leave the economy without a driver as the country wrestles with the hit to consumption, analysts say.

Manufacturers saw the pace of input prices increases accelerate, while output price growth eased slightly, causing the widest gap between the two measures in nearly a decade, a private sector survey showed on Friday.

Japan’s economy shrank in the first quarter and analysts expect any rebound in April-June to be modest as new COVID-19 infections forced the government to re-introduce state of emergency curbs, hurting already weak consumption.

Inflation has barely picked up in Japan as companies remain wary of passing on higher costs to households, even as supply bottlenecks and labour shortages stoke inflation fears in the United States and some other advanced economies.

TOKYO (Reuters) – Global stocks headed for their first weekly gain in three amid a surge in commodity prices, while traders braced for a key U.S. jobs report later on Friday that could provide clues on when the Federal Reserve will ease back on monetary stimulus.

MSCI’s benchmark for global equity markets, which tracks stocks in 50 countries, edged up about 0.1%, on course for a 0.4% gain this week.

Its broadest index of Asia-Pacific shares outside Japan ticked up by about 0.4% on Friday, with China’s blue chips and Japan’s Nikkei each gaining about 0.3%.

Aluminum prices approached levels last seen in 2018 and copper flirted with 10-year peaks as investors bet on a rapid global recovery from the pandemic, led by the United States.

Overnight, Wall Street investors piled into economically-sensitive stocks on the reflation trade, driving the Dow Jones Industrial Average to a record high close on Thursday.

The Dow rose 0.9%, the S&P 500 gained 0.8% and the Nasdaq Composite added 0.4%.

S&P futures pointed to further gains, rising 0.2% on Friday.

U.S. shares rallied, led by financials and industrials, after a report showed the number of Americans filing new claims for unemployment benefits fell below 500,000 last week for the first since the COVID-19 pandemic started, signalling the labour market recovery entered a new phase amid a booming economy.

The Russell 1000 Value index gained 0.8%, outpacing the Russell 1000 Growth index, which rose 0.5%.

The focus now shifts to Friday’s non-farm payrolls report, with estimates ranging widely between 700,000 and more than 2 million jobs having been created in April.

“Get ready for payrolls, they could be huge,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note for clients.

“The commodity space is the talk,” and financials are the “bull play” going into the payrolls report, he said.

The safe-haven dollar sank to its lowest level this week against a basket of major peers on Friday ahead of the jobs report, as firmness in global stock markets boosted risk appetite.

The dollar index dipped to 90.837, and was on track for a 0.4% decline this week.

Treasury yields hovered near the lowest level this month on Friday, further removing support for the greenback, after bond traders largely shrugged off the better-than-expected initial jobless claims data and waited for the non-farm payrolls report to provide market direction.

The 10-year Treasury note yielded 1.5714% early in the Asian session.

Gold headed for a 2.5% weekly gain, the most since December, as the weaker dollar and easing Treasury yields propelled the precious metal, an inflation hedge, above the key $1,800 an ounce psychological level to last trade at $1,813.54.

Investing.com – European stock markets are seen opening marginally higher Wednesday, with investors waiting for news from the Federal Reserve on a busy day for corporate earnings. 

At 2:10 AM ET (0710 GMT), the DAX futures contract in Germany traded 0.1% higher, CAC 40 futures in France climbed 0.1% and the FTSE 100 futures contract in the U.K. rose 0.3%. 

A number of blue-chip European companies released quarterly earnings Wednesday, and the banking sector is likely to be in the spotlight.

Deutsche Bank (DE:DBKGn) posted its best quarterly profit since the first quarter of 2014, as strength at the investment bank helped offset the headwinds of an ongoing restructuring program and the coronavirus pandemic.

Spain’s Santander (MC:SAN) said its net profit in the first quarter jumped almost five times as it didn’t book Covid-19 related provisions like a year ago and its U.S. unit posted a solid performance.

U.K. Lloyds Banking Group (LON:LLOY) also reported a strong quarterly result, with profit after tax of 1.4 billion pounds ($1.9 billion), supported by the release of expected credit loss provisions, given the improved economic outlook.

Additionally, Dassault Systemes (PA:DAST) posted a rise in both operating profit and revenue in the first quarter, while the French software maker tweaked its full-year outlook.

Earnings from the likes of Covestro (DE:1COV), Delivery Hero (DE:DHER), Spotify (NYSE:SPOT) and GlaxoSmithKline (NYSE:GSK) are also due, among others.

Elsewhere, the Federal Reserve wraps up its two-day policy meeting later Wednesday, but is not expected to make any changes to its ultra-easy monetary policies despite a steady run of good economic news in recent months.

Fed Chairman Jerome Powell will hold a press conference shortly after the decision is announced, and he is expected to reaffirm that easy monetary policy will remain in place for a prolonged period and dismiss any suggestions of tapering bond purchases.

On the data front in Europe, Germany’s GfK survey of consumer sentiment disappointed, falling to -8.8 in May from -6.1 the previous month, reflecting the new nationwide regime of restrictions to contain the pandemic.

Oil prices edged higher Wednesday as traders digested the competing influences of the Organization of Petroleum Exporting Countries and allies, including Russia, a grouping known as OPEC+, deciding to proceed with plans to move forward with a gradual output increase and a rise in U.S. crude stockpiles.

U.S. crude futures traded 0.4% higher at $63.21 a barrel, while the Brent contract rose 0.4% to $66.14.

An OPEC+ committee agreed late Tuesday to increase crude production as previously planned from May, amid growing confidence that there will be a strong demand rebound this year, even as coronavirus cases rise in countries such as India. 

However, this positive news has to be balanced against the American Petroleum Institute stating that U.S. crude stockpiles rose by over 4.3 million barrels last week.

Elsewhere, gold futures rose 0.6% to $1,768.95/oz, while EUR/USD traded 0.1% lower at 1.2077.

SYDNEY (Reuters) – Asian shares started cautiously on Monday as investors wait to see if U.S. earnings can justify sky-high valuations, while bond markets could be tested by what should be very strong readings for U.S. inflation and retail sales this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.05% in slow early trade. Tokyo’s Nikkei edged up 0.1%, while South Korean stocks rose 0.2%.

Investors were anxious to see how shares in Alibaba (NYSE:BABA) Group Holding Ltd fared after China slapped a record 18 billion yuan ($2.75 billion) fine on the e-commerce giant.

Reverberations could be felt beyond China as over a third of the stock is held by U.S. investors, and given the stock making up more than 8% of the MSCI EM index.

Some felt the decision was already in the share price.

“Ever since the Ant IPO was cancelled and with the antitrust laws in the pipeline, the market has expected that Alibaba would pay a price,” said Louis Tse, managing director at Wealthy Securities in Hong Kong.

“I think it’s good for the share price now that the news has been delivered and it is cleared up at last.”

Nasdaq futures were down 0.3% early Monday, while S&P 500 futures also eased 0.3%.

Growth and tech stocks had seen something of a revival last week as U.S. 10-year Treasury yields retreated to 1.67%, from a 14-month top of 1.776%.

Thomas Mathews, a markets economist at Capital Economics, doubted the rally in bonds would last, however.

“Given the pace of the economic recovery and the Fed’s apparent unwillingness to stand in the way of higher yields, we think long-term yields will rise again before long,” he said.

Over the weekend, Federal Reserve Chair Jerome Powell said the economy was about to start growing much more quickly, though the coronavirus remained a threat.

Data out this week are expected to show U.S. inflation jumped in March, while retail sales is seen surging perhaps even with a double-digit gain.

“Rapid economic growth, supported by reopening and accommodative fiscal policy, may disproportionately benefit the sectors of the stock market that are more sensitive to the health of the economy,” said Mathews at Capital.

“And the composition of that growth is likely to be more skewed towards those sectors than it might have been during a typical economic expansion.”

It is also likely to show in profits. The banks kick off first-quarter earnings season this week with Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) scheduled to report on Wednesday.

Analysts expect profits for S&P 500 firms to show a 25% jump from a year earlier, according to Refinitiv IBES data. That would be the strongest performance for the quarter since 2018.

The pullback in yields was enough to see the dollar come off the boil last week. It was last trading at 92.208 against a basket of currencies, down from a peak of 93.439.

It was flat on the yen at 109.73, and short of its March peak of 110.96. The euro was holding at $1.1897 and above its recent trough of $1.1702.

Gold prices were idling at $1,740 an ounce, having failed to sustain a top of $1,758 last week. [GOL/]

Oil prices fell around 2% last week as production increases and renewed COVID-19 lockdowns in some countries offset optimism about a recovery in fuel demand. [O/R]

Brent was quoted up 33 cents on Monday at $63.28 a barrel, while U.S. crude added 25 cents to $59.57.

TOKYO (Reuters) – Asian shares advanced on Thursday as markets’ euphoric mood over COVID-19 vaccines and the prospects of more political predictability and economic stimulus under the incoming Biden administration overrode a slate of weak U.S. economic data.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3% while Japan’s Nikkei gained 0.6%.

U.S. S&P 500 future rose 0.2% in Thursday’s Asian trade while Nasdaq futures rallied 0.4%.

MSCI’s broadest gauge of the world’s shares covering 49 markets added 0.1% to bring its gains so far this month to 12.7%, on course to make its biggest monthly gain on record.

The rally started after Democrat Joe Biden’s U.S. election victory earlier this month raised hopes for more government spending to support the pandemic-hit economy and for more policy predictability after four years of Donald Trump’s presidency.

“Reduced policy uncertainties are helping markets. It will be easier for companies to make capital expenditures,” said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui (NYSE:SMFG) Bank.

“It’s true that stock prices are quite expensive but markets are finding fewer and fewer reasons to sell them. In this environment, you can’t make profits by selling. The only question to ask is what assets you should buy.”

On Wall Street on Wednesday, the S&P 500 index shed 0.16% and the Dow Jones Industrial Average 0.58%, though the tech-heavy Nasdaq Composite increased 0.47%.

Traders attributed falls in S&P 500 and the Dow Jones to weak U.S. economic data.

Figures from the U.S. Labor Department’s weekly jobless claims suggested that an explosion in new COVID-19 infections and business restrictions were boosting layoffs and undermining the labor market recovery.

“I think a lot of people got ahead of themselves imagining that the recovery was taking shape. To me the recovery isn’t taking shape until we have a viable vaccine,” said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.

But investors also noted markets will remain awash with cash to invest, with the world’s central banks ready to provide more support for the pandemic-stricken economy.

Minutes from the U.S. Federal Reserve’s last policy meeting showed policymakers consider giving markets a better steer on how long they will continue to buy bonds to provide support to an economy under siege from a resurgence of coronavirus infections.

“It’s somewhat out of character that they mention taking this step “fairly soon” when they haven’t begun a discussion of this with the public,” wrote Michael Feroli, chief U.S. economist at J.P. Morgan in New York.

The Fed could extend of the maturity of its Treasury purchases if its board members judge that deterioration in the pandemic warrants more policy accommodation, he added.

In commodities, oil prices rose for a fifth day as a surprise drop in U.S. crude inventories added to the positive mood stemming from hopes of demand recovery. [O/R]

U.S. crude rose 0.77% to $46.06 per barrel and Brent gained 0.88% to $49.04

In the currency market, the U.S. dollar stayed under pressure as riskier currencies benefited from the increased optimism.

The dollar’s index against a basket of major currencies dipped 0.07% to 91.919, hitting its lowest levels in almost three months.

The euro held firm at $1.1925 while sterling also stood near three-month high at $1.3391.

The yen was little moved at 104.28 yen to the dollar.

Trade was slow as U.S. financial markets will be closed on Thursday for the Thanksgiving holiday. U.S. bonds and stocks will trade on a partial schedule on Friday.