Markets stabilize and earnings season ramps up as August begins

The final month of summer has arrived, and markets are looking upbeat. Chinese markets are stabilizing after a rocky July, while Europe is getting back into the swing of things as vaccine rollouts continue. Meanwhile, this week the U.S. is awaiting a decision on a trillion-dollar infrastructure bill, while another 150 companies in the S&P 500 are due to report second-quarter results.

But first, a recap of second-quarter GDP figures, which show the pace of the economic recoveries in the EU and the U.S., as vaccination programs continue in Europe and the U.S. grapples with recovery headwinds.

The eurozone area GDP grew 13.7% from the same quarter last year, while the economy grew by 2% from the previous quarter, surpassing a 1.5% expected rise. The biggest winners were in Southern Europe, with Italy and Spain growing at 2.7% and 2.8%, respectively, while Germany lagged behind, growing by only 1.5%.

But inflation is also running hot, accelerating to an expected 2.2% in July, according to Eurostat, shooting past the European Central Bank’s forecast for a 2% rise.

Meanwhile, U.S. GDP growth wasn’t quite as strong as expected. Year-on-year GDP growth was 12.2%—slower than the EU, in fact, and rising only 1.6% quarter-on-quarter—as strong consumption was offset by lagging inventories and supply-chain disruptions. But the growth brought U.S. output back above its pre-pandemic level for the first time since COVID-19 began—and keep in mind, the EU’s COVID-19 contraction was far sharper—with economists expecting strong growth for the rest of the year.

Meanwhile, China has been in the spotlight for its regulatory crackdown of private enterprises that produced, at one point, a $1.5 trillion stock selloff. Chinese officials also suggested on Friday that fiscal spending will accelerate in the second half of the year, as a COVID-19 outbreak that began in Nanjing continues to spread.

Now let’s see what’s moving markets this morning.

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Asia

August will hopefully prove to be a better month for Asian markets compared with July, as there are early morning signs sentiment has started to stabilize. The Hang Seng Index was up 0.89% in trading today; the Shanghai Composite up 1.97%; and the Shenzhen Composite is up 2.25%.

The official Chinese manufacturing growth index (PMI) fell from 50.9 to 50.4 in July—its lowest point since the peak of pandemic-related restrictions in China in February 2020. Indonesia, Thailand, Vietnam, and the Philippines have also reported PMI numbers below analyst expectations as they grapple with a new surge in infections

More areas in Japan entered into a COVID-19 state of emergency on Monday because of a spike in virus cases. That comes after a relatively strong July, with the final Jibun manufacturing PMI up for the month on stronger factory output. The Nikkei also finished the day 1.82% up.

Chinese electric vehicle maker Xpeng saw shares jump by more than 11% after the firm recorded a record high for vehicles delivered in July.

Europe

European stocks opened high this morning with the FTSE 100 back up 0.87% in morning trades, while the Stoxx Europe 600 also shot up by 0.62% this morning.

Meanwhile in France, automakers’ lobby CCFA-PFA said the global semiconductor shortage and surging infections would hinder rebound prospects for the French auto market.

In M&A news, U.S. industrial firm Parker Hannifin said it agreed to buy its British rival Meggitt for £6.3 billion ($8.8 billion), which sent Meggitt shares flying up by 57%.

The decline in the U.K.’s Delta variant COVID-19 cases continues—dropping to almost half their July peak—while the government has also announced plans to deliver booster shots to 32 million people over the age of 50. Nearly 87% of the adult population has received at least one dose, and 72.5% have received two.

U.S.

In U.S. Futures, the Nasdaq 100, S&P 500, and Dow Jones were all up by around 0.5% by 4:30 a.m. ET.

The U.S. $1 trillion infrastructure bill seems to be making steady progress after senators agreed on text for a bipartisan bill they hope to vote on by the end of the week.

This Friday’s U.S. employment report will be one to watch, with Fed Chair Jerome Powell noting in last week’s press conference that the country’s jobs market still has “some ground to cover,” with the unemployment rate steady at 5.9%, but he added that the U.S. has learned to better “handle” COVID-19 outbreaks with fewer economic consequences.

The Fed also signaled last week that it planned to reduce its pandemic-era bond buying program later this year—but financial markets shrugged off the announcement. U.S. 10-year Treasuries ended the week 5.4 bps lower.