Top 5 Things to Know in the Market on Tuesday, July 21st

By Geoffrey Smith 

Investing.com -- Europe seals a deal on its $860 billion recovery package, while U.S. policymakers try to bridge a yawning gap between their positions on the fifth stimulus package since the pandemic erupted. Stocks are set to build on Monday's exuberant tech rally, while earnings from Texas Instruments (NASDAQ:TXN), Lockheed Martin (NYSE:LMT), Coca-Cola (NYSE:KO) and others are due. Jeff Bezos is $13 billion richer after Amazon (NASDAQ:AMZN)'s surge on Monday, even though Prime Day is being delayed, and oil prices hit a four-month high on the general optimism. Here's what you need to know in financial markets on Tuesday, July 21st.

1. Europe's historic deal

The European Union’s member states finally agreed on a landmark deal that will create a 750 billion euro ($860 billion) recovery fund for the bloc.

The fund will be financed by borrowing by the EU itself, and over half of it – 390 billion euros in all – will be disbursed in the form of grants rather than loans.  As such it puts the firepower of German, Dutch and French taxpayers more solidly behind the credit of Italy, Greece, Spain and Portugal.

Sovereign bonds and bank stocks across the southern European periphery all outperformed on the news, but the euro itself, was unchanged against the dollar, having hit a four-month high in anticipation of the news last week.

2. Republicans, Democrats set to thrash out stimulus package

U.S. policy-makers will meet again to thrash out details of what will be the fifth U.S. stimulus package since the coronavirus struck.

Various reports suggest the Republican and Democratic parties remain far away from each other’s position, but the fact that each controls one chamber of Congress  means that compromise will have to be found.

President Donald Trump said at the weekend he still wants a payroll tax cut to form part of the package, while Treasury Secretary Steven Mnuchin said on Monday the measures would be worth around $1 trillion and would focus on “kids and jobs and vaccines.”

He also said the administration wants to provide tax incentives for businesses to rehire people and money for states that reopen schools. House Democrats are lobbying for more explicit support for states and cities, by contrast.

3. Stocks set to open higher after tech melt-up

U.S. stock markets are set to open higher again, extending gains made on Monday on the back of increased hope that one or more vaccine cures for the Covid-19 virus will be readily available by the end of the year.

By 6:30 AM ET (1030 GMT), the Dow Futures contract was up 177 points or 0.7%, while the S&P 500 Futures contract was up 0.7% and the Nasdaq 100 Futures contract was up 0.8%

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Stocks likely to be in focus will include Texas Instruments, Coca-Cola, Philip Morris and Lockheed Martin, all of which report before the open, as well as Snap, which reports after the close.

4. Bezos gains another $13 billion

Amazon (NASDAQ:AMZN) founder and CEO Jeff Bezos’ net worth rose by $13 billion on Monday, in the latest sign of tech stock valuations de-anchoring from the reality of an economy in the middle its biggest contraction since World War 2.

Amazon stock rose 7.9% on Monday, helped by big upgrades from Wall Street analysts including Goldman Sachs (NYSE:GS) and Jefferies (NYSE:JEF). However, the company said in an e-mail to suppliers it’s delaying its annual Prime Day, ostensibly due to the pandemic.

After the closing bell on Monday, IBM (NYSE:IBM) had joined the apparently unstoppable tech party, its shares rising over 5% in after-hours trading after it reported a 5.4% drop in revenue and a fall of nearly 50% in earnings per share for the second quarter. Those figures were marginally better than analysts’ expectations. Cloud-computing revenue rose 30% on the year, IBM noted.

5. Crude hits four-month high; API eyed

Crude oil prices hit their highest since early March as part of a generalized rally in risk assets after the EU deal.

By 6:30 AM U.S. crude futures were up 2.5% $41.95 a barrel, having earlier hit an intraday high of $42.02, while the international benchmark Brent was up 2.6% at $44.41 a barrel.

At 4:30 PM, the American Petroleum Institute will publish its latest weekly estimate of U.S. oil stocks. Analysts expect official government data, due on Wednesday, to show a fresh draw of 1.95 million barrels from crude inventories, after last week’s mammoth 7.5 million barrel draw.