MARKET WRAPS
Stocks:
European stock markets were little changed Friday, as investors awaited more guidance on the Federal Reserve's easing plans.
Moves were modest, however, with investors divided on the potential hints Jerome Powell may outline in his speech later at the Jackson Hole symposium, and despite calls from three Fed officials on Thursday to cut back central-bank bond-buying stimulus.
"It would be most surprising if the Fed didn't start to tap the brakes on bond buying now, given the improvements over the last 9 months, however it certainly doesn't mean the central bank is about to come to a full halt," wrote Michael Hewson, Chief Market Analyst at CMC Markets UK.
"Tapering is not tightening and is merely a reflection of a better economic outlook, where we will still see bumps along the way."
U.S. Markets:
Stock futures rose ahead of Powell's speech, due around 1400 GMT.
"Everyone is waiting for Jackson Hole, for Powell's speech," said Joost Van Leenders, senior investment strategist at Kempen Capital Management. "It is clear the hawks in the [FOMC] are getting more vocal on this and there is not a full consensus. I would like to have more clarity on this."
Powell is unlikely to give a clear date at which the Fed will end its bond-buying program Friday and will probably stress that raising interest rates isn't linked to tapering, Van Leenders said.
On the economic front, the Commerce Department is due to release measures of consumer spending and the Fed's preferred inflation gauge at 1230 GMT. The data on household outlays could show the continuing shift toward spending on in-person services.
Forex:
The U.S. Dollar Index dipped back below 93.00 in European trade, but the dollar should remain supported overall, even if Jerome Powell avoids giving specific details about plans to taper asset purchases in his speech later, said MUFG.
"Rates and the dollar should remain supported by confirmation that a plan is emerging," said Derek Halpenny, MUFG's head of research for global markets in EMEA. MUFG expects Powell to confirm that progress is being made towards a plan for tapering, although the Fed is likely to want to see next week's jobs report and signs that the delta variant of coronavirus isn't worsening before giving more specific details.
"The advancing inevitability of QE tapering is unlikely to be altered by today - merely extended to September," Halpenny said.
Sterling could weaken modestly against the euro if Powell confirms the Fed will soon start tapering, ING said. Confirmation of imminent tapering would take more of a toll on currencies which are sensitive to risk such as sterling, than on funding currencies such as the euro, ING analysts said. Sterling is more positively correlated to market sentiment than the euro, they said.
"We could witness a break above 0.8600 today, but we do not see any strong fundamental base to drive the pair sustainably higher for now."
Norwegians will vote in a general election on 13 September and opinion polls indicate the election will bring a change of government, said SEB.
"After 8 years in power, Erna Solberg's right/center coalition is now expected to hand over the post of prime minister to a left/center coalition, and the Labor Party once again looks set to take its place as Norway's largest party."
Norway has a long history of minority governments, which has created a broad consensus on economic policy, SEB said. "The election result is thus expected to have a small effect on fiscal policy and hence also the Norwegian krone and interest rates.
Bonds:
Eurozone government bond yields were rangebound early Friday, having broken out of lower levels earlier this week. Mizuho's rates strategists said there are signs of risk reduction heading into the Jackson Hole economic symposium, although market expectations are low, they said.
"There is little to suggest that Powell may deviate from the comments he's been giving recently, and we aren't anticipating much beyond what was included in the latest set of Fed minutes."
Markets would take note if Powell stressed that a taper shouldn't be taken as signalling a pre-determined course for rate rises, they said.
Societe Generale plans to lower its current forecast of +0.10% for the year-end level of the 10-year Bund yield, which it considers "too ambitious," its rates strategists say. This is partly due to relatively benign net supply picture in the remainder of the year. Societe Generale forecasts net issuance of government bonds and EU bonds to be around only EUR22 billion in September, EUR20 billion lower than in September 2020. "If the ECB maintains significant volumes of Pandemic Emergency Purchase Programme, issuance net of ECB purchases will be deeply negative in September, close to minus EUR70 billion or so," they say. The 10-year Bund yield last trades 0.1 basis point higher at -0.414%, according to Tradeweb. (emese.bartha@wsj.com)
Goldman Sachs expects the European Central Bank to slow down pandemic emergency bond purchases in the fourth quarter when it decides about the pace at the September monetary policy meeting.
"We look for a slowdown of the 4Q PEPP purchase pace toward the 1Q run-rate on the back of lower-than-expected downside risks due to the Delta variant, upside risks around the inflation outlook and the significant easing in financing conditions since the June meeting," said Goldman Sachs analysts Soren Radde and Sven Jari Stehn.
They expect the ECB to take time until December to provide color on the post-PEPP landscape. The ECB's Pandemic Emergency Purchase Programme is currently envisaged to terminate in March 2022.
Government bond issuance will pick up next week as the summer slump in supply comes to an end, with the Netherlands, Italy, Germany, Spain and France lining up for auctions.
Commerzbank's rates strategists Rainer Guntermann and Hauke Siemssen forecast next week's gross government bond supply to amount to an above-average EUR30 billion, but the net supply should turn negative due to EUR48.3 billion of backflows from Germany and Italy, they said.
Neuberger Berman sees value in inflation-linked sovereign bonds, expecting them to outperform conventional debt. Yanick Loriat, senior vice president at the asset manager said that real rates are going to rise less quickly than nominal ones, and inflation expectations should benefit from this. "So this type of bond is relevant to perform well."
Among conventional bonds in the eurozone, he finds non-core government bonds as interesting, in particular Italian and Spanish bonds because of the sufficiently steep yield curves in those countries.
Commodities:
Oil prices extended gains in Europe, recovering Thursday losses, as a tropical storm swirls toward the Gulf of Mexico, threatening to disrupt supply.
Tropical Storm Ida in the Caribbean Sea is forecast to move through key oil-producing regions in the Gulf Friday, lifting prices in anticipation of supply disruptions. Investors are also feeling more confident that fresh virus cases shouldn't impact demand in the long term.
"The Delta variant has caused concern for global oil demand, but should be transient," said Helge Andre Martinsen, senior oil analyst at DNB Markets. "We have observed that in mature economies with a high vaccine uptake the mobility holds up despite increasing case numbers."
Gold prices have remained stable despite investors exiting ETFs in the build-up to Jackson Hole. Gold ETFs tracked by FactSet registered outflows of over $700 million over the last week.
Copper gained ahead of Powell's speech but Fitch said headwinds are likely to hold back the metal, with the slowdown in global economic growth momentum and the continued spread of the Delta variant creating a more challenging environment.
Meanwhile, risks of supply disruptions in the form of mine strikes in South America appear to be easing and Chinese demand cooling. This is likely to "prevent copper from reaching the highs seen in May this year, " Fitch said.
EMEA HEADLINES
The Regulators Are Coming After Sustainable Investing
Some of the investment industry's claims about sustainability aren't sustainable. A U.S. probe into Deutsche Bank's asset-management arm could help sift out the fakers.
American officials are investigatingDWS Group, according to a Wall Street Journal report Thursday, after its recently departed head of sustainability said it overstated how widely it used sustainable-investing criteria. The outcome will likely be investors' first indication of how U.S. regulators will clamp down on Wall Street "greenwashing."
Barclays to Acquire $3.8 Bln US Credit Card Portfolio
Barclays PLC said Friday that it has agreed to acquire a $3.8 billion credit card portfolio in the U.S.
The British lender said Barclays Bank Delaware has entered into an agreement with Synchrony Bank to buy credit-card accounts and receivables issued in partnership with Gap Inc.
Steinhoff Nine-Month Revenue Boosted by Reduced Covid-19 Restrictions
Steinhoff International Holdings NV said Friday that revenue for the first nine months of fiscal 2021 rose, helped by the lifting of coronavirus-related restrictions in most of its markets, but warned on continuing uncertainty.
The South Africa-based retail group said revenue from continuing operations for the nine months to June 30 was 6.81 billion euros ($8 billion), up 15% on year.
Vonovia Secures Fresh Funds with Bond Placing
Vonovia has placed corporate bonds totalling EUR5 billion, as it boosts its balance sheet to help finance the planned combination with Deutsche Wohnen.
The German real-estate company said the five bonds have an average coupon of 0.49% and an average maturity of 10.3 years. There was high investor demand of almost EUR20 billion, which ensured attractive conditions, the company said.
Researchers Ready Lab-Grown Covid-19 Delta Variant for Human Trials
(MORE TO FOLLOW) Dow Jones Newswires
08-27-21 0600ET
