MARKET WRAPS

Watch For:

Germany GfK consumer climate survey; U.K. Nationwide House Price Index; U.S. Advance Economic Indicators Report; U.S. interest rate decision; updates from Banco Santander, Deutsche Bank, BASF, Telefonica Deutschland, Metro, Atos, Prada, Capgemini, Safran, Traton, Total, Babcock, ASM International, Rio Tinto, GlaxoSmithKline, Barclays, British American Tobacco, Smurfit Kappa, Equinor, ITV, Hiscox.

Opening Call:

Stocks could waver around flat at open, Chinese stocks fall again in early Asia trade. Dollar weakens ahead of FOMC meeting. Oil, gold, and copper rise.

Equities:

European stocks are set to waver around flat Wednesday ahead of a busy day in earnings and as markets await the outcome of the U.S. Federal Reserve's two-day meeting later.

Chinese stocks fall in early trade, extending losses into a fourth session, as gains for banks are outweighed by weakening auto shares.

The meltdown in China is weighing on investors' appetite for stocks in other markets, but the contagion effect is likely to be limited, according to Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe.

"The drag on sentiment will be there because China has been the engine of global growth for years now and seeing its stock market suffer like this is going to put a question mark on global growth," Mr. Kassam said. "Anything that weighs on global growth is going to have an effect on markets, but it is going to be a second-order story for global markets."

U.S. stocks slipped from records Tuesday, breaking a five-session winning streak for all three major indexes.

Losses in big tech stocks like Amazon.com and Google parent Alphabet weighed on the market, while shares of airlines and cruise companies also lagged behind.

A powerful rally has sent the S&P 500 up 17% in 2021, while the Nasdaq Composite has gained 14%.

"I wouldn't write this off to anything more than taking a little bit of a breather after the pretty good rally that we saw last week," said Jason Vaillancourt, co-head of global asset allocation at Putnam Investments.

Investors in recent weeks have cheered strong corporate results and upbeat guidance from some of the largest American businesses.

At the same time, they are considering risks posed by the highly transmissible Delta variant of Covid-19, supply-chain problems, a spike in inflation and cooling economic growth.

"We've been characterizing this market as a jetliner that has lifted off and is coming out of the Covid-19 air pocket, but is still trying to find an appropriate cruising altitude," said Kara Murphy, chief investment officer at Kestra Holdings. "We are seeing economic data going from great levels to good levels: that is still indicative of economic growth."

An increase in Covid-19 cases across the U.S. is leading some investors to question whether the economic recovery will be as robust as anticipated. The Centers for Disease Control and Prevention recommended Tuesday that vaccinated people return to wearing masks in public indoor spaces in places with high or substantial transmission of Covid-19.

"Not only the Delta variant but other variants are going to be here," said Loreen Gilbert, chief executive of WealthWise Financial Services. "How are businesses going to adjust, how are individuals going to adjust, as the coronavirus continues on?"

Investors were watching earnings reports after the market close Tuesday from tech behemoths. Microsoft posted another quarter of record sales, while Alphabet reported a surge in revenue powered by thriving sales from advertising. Apple posted a record spring-quarter profit as customers embraced new iPhones and other devices.

In corporate news, BHP's unexpected takeover offer for Noront Resources reflects BHP's desire to increase output of commodities used in batteries, said Macquarie.

"The move to acquire Noront Resources is a surprise, although at just C$325 million, accounts for circa 0.1% of BHP's market capitalization," Macquarie said.

Noront owns the Eagle's Nest nickel, copper and platinum group metals project, as well as other exploration assets. BHP's only nickel exposure is its Nickel West operation in Australia.

"Given the comparatively small scale of Eagle's Nest, we suspect BHP's acquisition is more focused on Noront's substantial exploration tenement portfolio in the Ring of Fire," Macquarie said.

Forex:

The U.S. dollar weakened against some major currencies, while the WSJ Dollar Index slid 0.1%, as the Delta variant shakes confidence in the economic recovery and American authorities revive some mask-wearing mandates.

Markets expect the Fed to advance monetary tightening discussions Wednesday, a process that could potentially strengthen the greenback.

"We continue to think that the U.S. dollar will rise further in the second half of the year," Capital Economics said, "as the divergence between the US and other major economies in terms of growth and, especially, inflation persists."

The USD slid 0.2% to the euro, 0.6% versus the yen and 0.4% against the British pound.

The forint should extend its current gains over the next two months as the country's central bank is set to raise interest rates further, TD Securities said.

Hungary's central bank on Tuesday lifted its benchmark rate by 30 basis points to 1.20% and TD analysts expect another rate rise of 30 basis points in August followed by a 15 basis point increase in September.

"Whether we see more hikes after that, may ultimately be determined by the forint's trajectory against the euro," the analysts said. "We do however see risks skewed toward more tightening," they said.

Bonds:

U.S. Treasury yields for long-dated debt slid lower Tuesday, despite a stream of robust economic data.

Saxo Bank sees a 70% chance that French President Emmanuel Macron will be re-elected in April 2022 for a second five-year term after defeating National Rally's leader Marine Le Pen, said director Christopher Dembik.

Since Le Pen dropped her controversial proposal to exit the euro, risk building in French bond markets is likely to be more modest than in 2017, he said.

"We expect the OAT-bund spreads to widen by 30-35 basis points in early 2022 but to remain far from levels reached during the previous presidential election (up to 80 basis points)," he said.

Energy:

Oil rose in Asia ahead of weekly U.S. petroleum inventory data and the outcome of the FOMC's two-day meeting.

The market is now eyeing weekly U.S. inventories, with expectations of a 2.5-million-barrel drawdown, ANZ said.

Also, markets are keenly awaiting the statement following the conclusion of the FOMC meeting, though it's widely expected that the Fed won't be in a hurry to adjust its accommodative monetary policy, ANZ said.

Metals:

Gold rose in early Asian trade, but gains may be limited ahead of the outcome of the FOMC's two-day meeting later in the global day. There's investor caution ahead of the meeting which could offer details on stimulus tapering, Phillip Futures said.

The Fed is likely to affirm that a strong U.S. recovery and plans for an eventual policy shift are both ongoing, it adds.

Copper rose in early Asian trade after ending the previous session lower as the rout in Chinese technology stocks spilled over into base metals, according to ANZ. A drop in risk appetite sparked a sell-off on the Shanghai Futures Exchange which extended into the London session on the LME, it said.

"This comes as the market faces a soft patch in demand amid the normal seasonal slowdown," the bank added. Nevertheless, it noted that supply of base metals including copper remains "relatively constrained" which should offer some support to prices.

The three-month LME copper contract rose 0.5% to $9,805/ton.

TODAY'S TOP HEADLINES

Lawmakers Say Infrastructure Deal Within Reach

WASHINGTON-Lawmakers expressed renewed optimism Tuesday that they were close to reaching a deal on a roughly $1 trillion infrastructure package as they worked through a series of 11th-hour holdups.

After a day of partisan sniping over last-minute disputes, lawmakers said Tuesday they were approaching resolution to some of the issues that had bogged down the final stretch of negotiations. But they still hadn't finished their talks, weeks after the group announced that they had agreed to a loose framework for a deal.

Credit Suisse Expected to Publish Details of Archegos Failures

Credit Suisse Group AG is likely to publish an investigation as soon as Thursday into the breakdown that led to massive losses from family office Archegos Capital Management, people familiar with the matter said.

The detailed report could become public around the time Credit Suisse reports second-quarter earnings, the people said. The report focuses on problems in the bank's risk management unit, human errors in judgment and unheeded risk in concentrated positions, some of the people said.

Vaccination Rates Drive Global Economic Growth Prospects, IMF Says

The economic outlook is diverging for countries based largely on how well they are rolling out Covid-19 vaccinations, according to new forecasts released Tuesday by the International Monetary Fund.

Economic prospects are improving for advanced economies, where nearly 40% of the population has been vaccinated, despite challenges from new variants of the coronavirus, the IMF said. At the same time, far lower vaccination rates have left emerging and developing economies more vulnerable to additional waves of the pandemic and the associated economic fallout.

Durable-Goods Orders Advanced in June as U.S. Economy Continues to Grow

Orders for cars, appliances and other durable goods increased in June, signaling continued strength in the U.S. economy as manufacturers continue to deal with shortages in parts and labor and confront higher material costs.

(MORE TO FOLLOW) Dow Jones Newswires

07-28-21 0019ET