US Open Note – Stocks to close the week unharmed as the focus turns to the Fed

Stocks flirt with record highs

Despite a choppy week, which spurred pandemic fears before putting them back to rest again, global stocks bound up their wounds as investors cheered on robust corporate profits and assessed that fiscal and monetary policy could still protect economies from covid breakouts.

Industrials, basic materials, and consumer cyclicals drove gains in the pan-European STOXX 600 today, pushing the index closer to its recent record highs, while upbeat earnings in telecommunications and autos underpinned sectoral advances.

Wall Street staged a faster recovery than its European counterparts, with the Nasdaq 100 hitting fresh all-time highs on Thursday. The S&P 500 is also flirting with uncharted territory ahead of a promising week, which may see earnings releases from Apple, Facebook, Google’s parent Alphabet, and other tech companies likely beating analysts’ forecasts as Twitter’s results did yesterday.

Euro in cautious mode as Fed comes under the spotlight

The Fed’s policy announcement next Wednesday, however, could be a headwind to stocks if the central bank talks about tapering. Yet, given the surging infection cases in the US and the challenging conditions in the labor market, the Fed may use a neutral tone instead, with investors shifting attention to the Jackson Hole symposium in late August for any policy updates.

On the other hand, the ECB clarified yesterday that it won’t adjust its ultra-easy policy for the foreseeable future, although comments from ECB's Wunch revealed today that not all policymakers are on the same page. Nevertheless, the ECB’s dovish forward guidance suggests more weakness for the euro, and perhaps a stronger dollar assuming tightening actions from the Fed.

Following the ECB's dovish signals, even an unexpected rise in the EU flash Markit PMIs for July could not boost euro/dollar today, leaving the pair stable around 1.1770.

Other news

In the UK, the pound was pushing to recover earlier losses and hold above 1.3700 against the greenback despite disappointing Markit PMI figures.

In other data, Canadian retail sales declined less than expected in May, but the loonie barely reacted, with dollar/loonie remaining flat near weekly lows at 1.2567 and loonie/yen trading stable at 87.88.

Dollar/yen could attract some interest in the coming sessions as the pair is trying to breach resistance around the 20-day simple moving average at 110.40.

Turning to commodities, gold slipped to two-week low of $1,789 before bouncing back above the $1,800 mark. WTI oil futures keep pushing for a close above the $72.00/bpd level.

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