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  • Rowlands Venture Capital

Growth Fears, ECB, Jobless Claims, Olympics Blow, What's Moving Markets?

The European Central Bank unveils its new monetary policy strategy, but may still struggle to convince markets it can deliver on it. Weekly jobless claims are expected to fall to a new post-pandemic low. Stock futures tumble as investors unwind bets on growth and inflation in response to the minutes from the Federal Reserve's latest meeting, and the Olympic Games will take place with no spectators due to rising Covid-19 cases. U.S. oil inventory data are also due. Here's what you need to know in financial markets on Wednesday, July 8th.

1. The ECB's Big Reveal

The European Central Bank will unveil its new monetary policy strategy after over a year of head-scratching, aiming to convince markets that it can still deliver price stability after a decade of consistently undershooting its target.

Advance leaks suggest that the bank will change its inflation target to a more explicit 2%, removing the asymmetric bias implicit in its current mantra of “close to, but below, 2% over the medium term.” Analysts say that will give it more leeway to allow temporary overshooting of its target, akin to the Fed’s now-explicit tolerance of temporary overshooting.

Whether the ECB can generate 2% inflation in a currency union still hobbled by the lack of permanent solutions to chronic low growth, national bankruptcy risks and a weakened banking system is another question.

Almost as an aside, the bank will keep its current policy stance unchanged, although President Christine Lagarde’s comments at her press conference will be parsed as usual for changes to the outlook.

2. Jobless claims to hit new low

U.S. initial jobless claims are expected to have fallen to a new post-pandemic low of 350,000, from 364,000 last week.

The numbers are due for release at 8:30 AM ET. They come a day after the Labor Department’s monthly job openings survey for May showed that layoffs had already reached a record low as a newly-reopened service sector scrambled for workers.

The claims numbers will be substantially more up to date than the JOLTs survey, but may still struggle to reinforce confidence in a recovery that appears to be flattening out, not least due to the slowdown in vaccinations that has left midwestern states in particular vulnerable to the fast-spreading delta strain of Covid-19.

3. Stocks set to open sharply lower after tapering hint

U.S. stock markets and bond yields are set to open sharply lower as investors unwind previous bets on strong growth and relatively high inflation continuing into the medium term.

The yield on the U.S. 10-Year note has plummeted to 1.26%, its lowest since February, while the dollar has strengthened to a three-month high as the global safe-haven bid strengthens. The dollar strengthened after the minutes from the last Federal Reserve meeting bolstered expectations that it will may start reducing its asset purchases later this year.

By 6:15 AM ET, Dow Jones futures were down some 541 points, or 1.6%, while S&P 500 futures were also down 1.6% and Nasdaq 100 futures were down 1.5%, as the latest antitrust onslaught against Google owner Alphabet (NASDAQ:GOOGL) weighed on tech giants. News of an executive order being prepared to break the market power of major railroad companies may also hit those stocks later in the session.

4. The pandemic strikes back - at the Olympics

The delayed 2020 Summer Olympic Games will take place without spectators, after Prime Minister Yoshihide Suga declared a state of emergency for the prefecture of Tokyo due to rising cases of Covid-19.

The decision had been widely expected, as new infections in the Tokyo prefecture have been rising for nearly a month and hit their highest level since mid-May on Wednesday. Japan has been slow to vaccinate its population so far, with barely a quarter of the population receiving even one jab.

The decision still represents a setback to confidence that the world has the pandemic under control. Much of the developing world which, like Japan, has low vaccination rates, is facing an even sharper surge in case numbers: Indonesia, the world’s most populous Muslim country, new infections and deaths have multiplied some sevenfold in less than a month.

Johns Hopkins data suggest that the global death toll from the virus topped 4 million this week although, given structural reporting problems in lower income countries, the likelihood is that this milestone was passed long ago.

5. Oil tumbles despite another big inventory draw; EIA data eyed

Crude oil prices slumped on global growth concerns, notwithstanding the prospect of a tighter physical market in the near term due to disagreements over output policy at OPEC.

U.S. crude futures were down by more than 1% during the overnight session but pared their gains to be down only 0.9% at $71.58 a barrel by 6:15 AM ET. Brent futures were down 0.7% at $72.95 a barrel.

The U.S. government releases official inventory numbers at 10:30 AM ET, a day later than usual due to the Independence Day holiday. American Petroleum Institute numbers released on Tuesday again showed a bigger draw on crude stocks than expected, at nearly 8 million barrels. They’ve fallen by 32 million barrels in the last four weeks thanks to the ongoing recovery in U.S. mobility.

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