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Stock futures wavered Monday as investors geared up for corporate earnings season to kick off this week.

In premarket trading, Virgin Galactic jumped over 9% after the company launched founder Richard Branson to the edge of space over the weekend. He returned to Earth safely on Sunday. The shares have doubled so far this year.

Chinese ride-hailing company Didi Global slumped 2% premarket. Beijing's moves to crack down on data policy and on overseas IPOs have battered the recently listed company's shares.

Earnings season begins Tuesday and investors will be closely watching to see if companies' results justify the high valuations in the equity market.

"It's hard to be bearish. Companies have access to capital, financial conditions are still very easy, investor appetite is very high," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham. "Our positioning is that we're still all clear for the rest of 2021."

This week's focus will be on financial company earnings. JPMorgan and Goldman Sachs will report Tuesday, followed by Bank of America, Citigroup and BlackRock on Wednesday and Morgan Stanley on Thursday.

"Financial companies are certainly benefiting from this environment, across monetary and fiscal spigots," Mr. Perdon said. "Corporate activity is picking up, there's more lending, trading, issuance."

Stocks wobbled last week before surging on Friday to fresh records. A drop in Treasury bond yields put markets on edge about a slowdown in growth. Investors said the spread of Covid-19 variants is a rising concern.

"Sentiment in equities remains bullish, but the Delta variant is a headwind for that. There's an ongoing concern, what if reopening is difficult to do?" said John Roe, head of multiasset funds at Legal & General Investment Management.

In Europe, French software maker Atos SE tumbled 15% after slashing its guidance for future business.

In Asia, markets are still reacting to the People's Bank of China's move late Friday to cut reserve requirements for banks, said Mr. Roe.

"When China changes things like this, it also comes with an expectation to lend more," he said. "This seems to have brought some stability to Chinese markets."

Japan's Nikkei 225 was led by industrial stocks such as Yaskawa Electric, which boosted its full-year outlook citing strong demand from manufacturers. Demand for Japanese stocks has likely been boosted by a recent acceleration in the country's vaccine rollout, Mr. Perdon said.

Forex:

Fed Chair Jerome Powell could "help to put a dampener on U.S. dollar strength in the near term" when he delivers his semi-annual testimony on monetary policy Wednesday, said Lee Hardman, currency analyst at MUFG.

A correction lower in market-based measures of inflation expectations should "bring some relief" for Fed policymakers. Combined with "potential for a more disrupted global recovery given the ongoing spread of the Delta variant," this means Powell's tone is likely to be less upbeat, Hardman said.

The negative impact on the dollar could be tempered if global growth concerns intensify further, however, he said. The DXY dollar index was last flat at 92.1430, having dropped back from a three-month peak of 92.8450 reached last week.

Market expectations that the Bank of Japan will maintain its ultra-loose policies for some time may continue to weigh on the Japanese yen in the near-term but the currency should recover next year, Commerzbank said.

"As soon as U.S. inflation falls significantly next year, as our economists expect, the BOJ's passive stance should become less of a burden, whereupon the yen should recover, especially against the U.S. dollar," Commerzbank currency analyst Thu Lan Nguyen said.

The market is likely to scale back expectations for interest rate rises by the Federal Reserve as inflation eases, she said. Commerzbank expects USD/JPY to fall to 100.000 by December 2022, from 110.120 currently.

Bonds:

In bond markets, the yield on the 10-year Treasury note was flat at 1.354%, the same as Friday's closing level, stabilizing after two consecutive weeks of declines.

"The big thing yields have been telling us is that the exuberance over reflation had gotten a bit out of hand," said Mr. Roe. There is likely to be less volatility in the bond market going forward, now that a lot of short positions have been unwound, he said.

The European Central Bank's strategy change, which sets a symmetric 2% target, looks a good compromise between hawks and doves--those favoring tighter or looser monetary policy respectively--, said Silvia Dall'Angelo, senior economist at Federated Hermes.

"While it implies on paper that ECB policies will err on the accommodative side in the short- to medium-term, it is vague enough to leave the ECB full flexibility to adjust in due course," she said.

The ECB fell short of formally adopting a make-up strategy, similar to the "flexible average inflation targeting" framework which the Federal Reserve implemented in September 2020. This means that in the short- to medium-term, the Fed's policy setting will continue to be fundamentally somewhat more 'dovish' than the ECB's, she said.

Commodities:

Oil prices fell after a late Friday rally failed to prevent prices closing out the week with losses for the first time since May.

"There is still plenty of uncertainty over OPEC+ production plans for August," said ING's Warren Patterson, and adds that with UAE and Saudi Arabia reportedly still struggling to come to an agreement, "prices are likely to remain volatile until we have some clarity."

Separately, the market will be watching the IEA and OPEC, which release their monthly market reports Tuesday and Thursday this week. Any signals of OPEC's outlook could inform trading around the cartel's production quotas impasse.

Gold edged lower amid mixed signals. Worries that Covid-19 variants may endanger the global economic recovery spurred safe-haven demand for the precious metal at the close of last week, but price gains in the precious metal were limited as global bond yields rose, Phillip Futures said. After posting a third weekly advance last week, gold has begun this week on a quiet note.

Base metals edged lower with the focus on this week's U.S. inflation data. Three-month copper on the LME fell 0.6% to $9,432 a metric ton, while aluminum edged down 0.3% to $2,487 a ton and nickel weakens 1.1% to $18,550 a ton.

Copper stocks are continuing to build, with LME inventories hitting a more than one-year high.

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07-12-21 0606ET