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World stock markets ride earnings to a record peak

Global shares rode earnings to a record high on yesterday, while the dollar and treasury yields languished in the wait for US employment data to provide clues to the pace of monetary tightening in the world’s biggest economy.

Strong corporate profits have eased concerns over the COVID-19 pandemic, as vaccine roll-outs continue apace in developed markets, despite a resurgence of cases in Asian countries including China.

While that has helped buoy equities, inflationary pressures and a growing belief the US Federal Reserve may soon signal its intention to trim support to the economy continue to cause a tussle with the bond market over the mid-term direction.

“Macro data is coming at high expansionary levels but currently all the market is seeing is peak data. It wants to know what’s going to be the glide path over the next 12 months. Those concerns are playing out in the bond market,” said Grace Peters, EMEA head of investment strategy at JP Morgan Private Bank.

“When it comes to the equity markets, you have more balance, as lower yields support equities, especially the growth part of the equity market. At the same time, there is strong bottom-up evidence that life is good for corporates.”

The MSCI World index, a broad gauge of equity markets, was last up 0.2%, tracking overnight gains in Asia, where the equivalent index, excluding Japan rose 1%.

Across Europe, the STOXX Europe 600 and FTSE 100 were up 0.4%-0.6%, with the latter supported by strong results from housebuilder Taylor Wimpey and insurer Legal and General.

U.S. stock futures pointed to a quiet open on Wall Street, hovering either side of flat.

Close to 90% of companies listed on the S&P500 have reported positive earnings surprises for the second quarter, National Australia Bank (NAB) economist Tapas Strickland said.

“Aside from (the) healthy earnings outlook, we also see equities being supported by continued monetary stimulus from the Federal Reserve and the attractiveness of stocks relative to low bond yields,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management in a note.

Investors expect volatility to increase in August as more companies report earnings and the market hears from Federal Reserve officials in coming weeks.

While all eyes will be on the latest US non-farm payroll numbers on Friday – the last before US central bankers convene at Jackson Hole to discuss policy – markets are also set to take a hint from Wednesday’s US ADP employment survey.

Ahead of the data, the U.S. dollar was up 0.1% against a basket of currencies while benchmark Treasury yields were up 1 basis point at 1.182%.

Elsewhere in currencies, the pound was up 0.2% against the dollar while the euro was flat. Bitcoin was down 0.8% at just under $38,000, with ethereum down 0.1%, paring early losses ahead of a network upgrade.

Eurozone government bond yields hovered near recent lows, with the German 10-year yield at -0.489%, little moved by July eurozone purchasing managers index survey data that came in slightly worse than expected.

In commodities, Brent futures gave up early gains to last trade 0.2% lower at $72.30 a barrel, while US crude was down 0.4% at $70.26 a barrel.

Spot gold was up 0.2% at $1,812.9 an ounce.

Oil prices fell for the third day in a row to a two-week low on Wednesday on a surprise build in U.S. crude stockpiles and as the spread of the coronavirus Delta variant outweighed the impact of Mideast geopolitical tensions.

The US Energy Information Administration (EIA) said crude stockpiles rose 3.6 million barrels during the week ended July 30.

That compares with the 3.1-million-barrel draw analysts forecast in a Reuters poll and the 0.9-million barrel decline the American Petroleum Institute (API) reported on Tuesday.

Brent futures fell $1.09, or 1.5%, to $71.32 a barrel by 10:51 a.m. EDT (1451 GMT), while US West Texas Intermediate (WTI) crude fell $1.43, or 2.0%, to $69.13. That puts both benchmarks on track for their lowest since July 20. For Brent, it puts the contract down for the third day in a row for the first time since late May.

“Worries continue to grow over the spread of the Delta variant in China, which has weighed heavily on oil prices in recent days,” analysts at bank ING said.

The United States and China, the world’s two biggest oil consumers, are grappling with rapidly spreading outbreaks of the highly contagious Delta variant that analysts anticipate will limit fuel demand at a time when it traditionally rises in both countries.

In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control. Tensions in the Mideast Gulf, meanwhile, supported prices.

On Tuesday, three maritime security sources claimed Iranian-backed forces seized an oil product tanker off the coast of the United Arab Emirates, though Iran denied the reports.

This is the second attack on a tanker since Friday in the region, which includes the Strait of Hormuz. The United Kingdom and the United States are also blaming Iran for the earlier incident, in which drones crashed into the vessel and killed two sailors. Iran denies the reports.

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