European stocks fell Friday as investors took a risk-off stance across global equity markets.
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.
"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."
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.
Meanwhile, Eurozone gross domestic product grew 2.0% over the previous quarter in 2Q. The eurozone's economic recovery firmed up in the second quarter, as the gradual lifting of Covid-19 restrictions allowed some activity to spring back, said Tej Parikh, director of the economics team at Fitch Ratings. Both consumer and business confidence are booming across the region, Parikh noted.
"The reopening of non-essential shops has seen retail sales leap back toward pre-pandemic levels, while there are signs that firms' investment plans are rising, which bodes well for continued growth," he said. The momentum from economies reopening should carry into 3Q, but a rise in cases of the Delta variant across the eurozone may pose a downside risk, Parikh said.
Stock futures fell, 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.
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.
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 says.
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.
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.
Eurozone Economy Showed Stronger-Than-Expected 2Q Rebound
The eurozone economy grew at a faster-than-expected pace in the second quarter, thanks to the easing of coronavirus restrictions across the continent.
Across the 19 countries that use the euro as their currency, gross domestic product grew 2.0% in the second quarter, the European Union's statistics agency Eurostat said Friday in a first estimate for the period. Economists polled by The Wall Street Journal had expected a 1.5% expansion.
German Economy Grew at Slower-Than-Expected Pace in 2Q
Germany's economy grew in the second quarter, according to a first estimate published Friday by the Federal Statistical Office, but missed expectations.
Gross domestic product rose by an adjusted 1.5% from the previous quarter, Destatis said. This expansion was smaller than economists' expectations of 1.9% growth in The Wall Street Journal's survey.
BNP Paribas 2Q Profit Rose on Retail Growth, Lower Provisions
BNP Paribas SA said Friday that second-quarter net profit and revenue rose as it booked lower provisions and its domestic markets division rebounded, while it will distribute another dividend.
France's largest listed bank by assets posted net profit for the period of 2.91 billion euros ($3.45 billion), up from EUR2.30 billion a year earlier and beating expectations of EUR2.46 billion, according to a consensus provided by FactSet. Revenue edged up 0.9% to EUR11.78 billion, it said.
UniCredit 2Q Profit, Revenue Beat Estimates
UniCredit SpA posted profit and revenue well ahead of analysts' estimates for the second quarter, with loan loss provisions down from the high levels seen last year.
The Italian bank said Friday that net profit surged to 1.03 billion euros ($1.22 billion) from EUR420 million a year earlier, above analysts' median estimate of EUR720 million based on company-provided consensus.
IAG to Ramp Up 3Q Capacity But Still Can't Provide Full-Year Guidance -- Update
International Consolidated Airlines Group SA said Friday that it was ready to take advantage of a surge in air travel demand in line with increasing vaccination rates but it remains unable to provide full-year guidance.
IAG said second-quarter passenger capacity was 22% of the level in 2019, and had been affected by Covid-19 and government restrictions and quarantine requirements. It said capacity for the third quarter will be around 45% of 2019's level, although this remained uncertain and was subject to a continuing review.
Swiss Re Swung to 1H Profit
Swiss Re AG said Friday that it swung to profit in the first half and that it expects coronavirus-related losses to diminish in the coming quarters as vaccination campaigns progress globally.
The Swiss reinsurer posted a net profit of $1.05 billion in the period, from a net loss of $1.14 billion a year earlier.
NatWest Swung to 2Q Pretax Profit, Resumes Dividend, to Launch GBP750 Mln Share Buyback -- Update
NatWest Group PLC on Friday reported a swing to a pretax profit ahead of market views for the second quarter of 2021 and said that it intends to launch a significant share buyback program after resuming its dividend.
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