No major economic data expected; updates due from Philips, Schroders, Investor, Land Securities
Worries over inflation and some poor Chinese growth data will likely drag on European shares. In Asia, most stocks were lower; the dollar, Treasury yields and oil continued to climb; while gold struggled for gains.
European equities could struggle for traction on Monday, as the continued surge in energy prices heighten worries about inflation.
In Asia, benchmarks in Japan, Hong Kong and China all fell following data that showed China's economic growth slowed sharply in the third quarter to 4.9%.
U.S. stock futures also weakened slightly after Wall Street finished with its best week in months on Friday, following some strong earnings reports and reassuring economic data.
While earnings this season have largely impressed investors so far, many say they remain cautious about the market's outlook, citing fears that supply-chain blockages and a steep rise in energy prices will fuel more inflationary pressures. That in turn could push central banks to withdraw stimulus at a faster pace than currently forecast.
According to a WSJ survey, economists believe supply-chain bottlenecks and elevated inflation will likely last well into next year and are bigger risks to the economy than Covid-19. The economists' inflation projections are up dramatically from July, while short-term growth outlooks are lower. Read the full article here.
Stocks to Watch: Rio Tinto isn't immune from further guidance downgrades this year, said broker Morgans, as shortages of energy, labor and equipment parts bite.
Morgans added that delays at the miner's iron-ore projects in Australia are hardly a surprise: Rio Tinto has been candid about operational challenges in the Pilbara iron-ore business this year in part because it can't get enough workers. It is "not cause for long-term concern, but there is further risk in the fourth quarter of 2021 that in a worst case [Rio Tinto investors] could see a third 2021 downgrade," said Morgans.
Morgans also said Rio Tinto should be hunting more aggressively for a copper acquisition to rebalance its iron-ore focused portfolio. However, the broker acknowledged that may be unlikely to happen given the miner's current focus on improving its operational performance and social license.
"Rio's dependence on Escondida for copper exposure is causing it considerable pain as the giant copper mine continues to suffer sustained Covid impact," said Morgans. Rising profitability of Rio Tinto's aluminum business is a real positive, though, said the broker, which is looking for any sign the miner might sell higher-cost assets while they are profitable.
The dollar made further gains in Asia, with the USD Index edging above the 94.00 level. CBA said the greenback has further upside, noting rate-increase expectations have risen since the FOMC's September meeting. It also said underlying inflation pressures are building.
USD/JPY remained firmly above 114.00, having appreciated 2.4% over October to date. CBA said the outlook for FOMC policy normalization and high energy prices have contributed to the recent appreciation.
UniCredit said sterling could rise further in the near-term on continued "hawkish signals" from Bank of England officials that suggest monetary policy tightening is imminent.
"The progressive shrinking of the two-year U.K. gilt versus the Treasury yield spread has ultimately turned positive for the GBP/USD exchange rate and may offer additional relief for a return back toward 1.40 over the medium term, should the rate-hike cycle begin earlier in the U.K. than in the U.S.," said Unicredit forex strategist Roberto Mialich. That may also allow sterling to extend gains against the euro, he added.
Bitcoin could reach a record high if the Securities and Exchange Commission allow the first U.S. bitcoin futures exchange-traded fund to begin trading next week, said Oanda.
The SEC is reviewing about 40 bitcoin ETF applications and is expected to approve at least some of them, Bloomberg reported. "If ProShares and Invesco Ltd. have their respective bitcoin ETF applications get approved next week and initial trading volumes are strong, bitcoin could have enough momentum to target the $74,500 region," said Oanda analyst Craig Erlam.
"If the global energy crisis fears ease in the coming months, Bitcoin could have a path towards $85,000."
Long-dated Treasury yields continued to rise in Asia, with the yield on the benchmark 10-year note edging above 1.6%, after they rebounded Friday following some consensus-beating U.S. data.
Heading into the final months of the year, "likely outcomes would be for economic growth to slow from the well-above average pace seen in the first half of 2021, unemployment to continue to fall from its current level of 4.8% and the Fed to begin reducing (tapering in Fed-speak) bond-market purchases after its Nov. 3 meeting," said John Gentry, senior portfolio manager at Federated Hermes, in emailed comments.
"Treasury yields remain well below long-term averages, but nothing demands policy makers must catch up overnight," he wrote. "In fact, recall that the 2-year Treasury yield ranged from 0.20% to 0.60% for more than three years during the early part of the last decade. Given the obstacles the pandemic has produced, it is difficult to envision yields reaching even average levels in the near future."
European cash corporate bond markets followed the move wider in the derivatives market last week, but the move is not as bad as it looks, said Societe Generale.
Euro investment-grade corporate spreads moved to their highest levels since April, though given that the euro investment-grade nonfinancial corporate bond index "has traded in a range of less than 10 basis points all year, this is less alarming than it sounds," said Societe Generale.
By contrast, sector performances showed very little dispersion, or spread differential, but the earnings season could change that. "We think autos, luxury goods and some industrials companies could start to underperform banks, even though the latter are suffering from more profit-taking."
Oil continued to climb in Asia trade, extending their rise to multiyear highs on prospects for robust global demand.
Prices have found support from expectations that global power producers will look to use oil, in place of natural gas and coal, amid shortages.
"A massive shortage of coal and natural gas in Asia and Europe has left the power plants reluctantly having to choose crude oil over natural gas - a pattern not seen for at least a decade," Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.
Easing Covid-19 restrictions around the world are also likely to aid the recovery in fuel consumption, said ANZ, noting news that the U.S. will open its borders to fully-vaccinated foreign travellers starting next month.
Gold futures were little changed in Asia, held back by the stronger dollar and rising Treasury yields.
TD Securities said the outlook for a prolonged period of higher inflation in the U.S. is preventing gold from surging just yet, noting that the precious metal is an ideal hedge against rising stagflationary winds.
Base metals were higher, with zinc leading gains after Glencore said it will cut output at its European zinc smelters. This follows Nyrstar's decision to reduce zinc production as energy shortages weigh, said ANZ.
"Base metal prices are expected to receive support from rising production costs. Energy use in the smelting of metals is relatively high and is being exacerbated by a surging carbon price, offsetting concerns of weaker demand," said ANZ.
Goldman Sachs said high oil prices could catalyze a rally in the wider commodity complex, with energy-intensive commodities like aluminum, cotton and copper likeliest to gain.
The bank said input-cost inflation is already sending prices of these three commodities higher as growing inventory tightness provides support. Supply-chain issues are worsening this commodity-price inflation, making "transitory shocks seem persistent," said Goldman Sachs.
"The rolling impact of smaller, frequent shocks on a stretched system generates the emergent phenomenon of persistent physical price inflation--the start of which we are beginning to see."
TODAY'S TOP HEADLINES
China's Third-Quarter Economic Growth Slows Sharply to 4.9%
BEIJING-China's economy grew 4.9% in the third quarter from a year earlier, slowing sharply from the previous quarter's 7.9% growth rate, as power shortages and supply-chain problems added to the impact from Beijing's efforts to rein in the real estate and technology sectors.
While many economists expected China's year-over-year growth to trend lower in the second half of 2021, based in part on statistical comparisons to last year, the scale of the third-quarter slowdown was sharper than expected, falling short of the 5.1% growth forecast by economists polled last week by The Wall Street Journal.
Supply-Chain Bottlenecks, Elevated Inflation to Last Well Into Next Year, Survey Finds
Uncomfortably high inflation will grip the U.S. economy well into 2022, as constrained supply chains keep upward pressure on prices and, increasingly, curb output, according to economists surveyed this month by The Wall Street Journal.
The economists' inflation projections are up dramatically from July, while short-term growth outlooks are lower.
'Crazy' Bets on $200 Oil Invade the Options Market
A roaring trade in bullish crude-oil options says the 2021 energy rally is far from over.
Traders once again are betting that the U.S. oil benchmark will surge above $100 a barrel, from a recent $82, as early as December. U.S. crude, known as West Texas Intermediate or WTI, is up 10% this month, and 70% this year, but it hasn't hit $100 since the oil crash of 2014.
Behind the Energy Crisis: Fossil Fuel Investment Drops, and Renewables Aren't Ready
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