MARKET WRAPS
Watch For:
U.S. Housing Starts for September; Johnson & Johnson 3Q results; Procter & Gamble 1Q results.
Opening Call:
Stock futures ticked up ahead of a slew of earnings that investors will parse for insight into how companies are faring with inflation and supply-chain disruptions.
A spate of companies are due to report quarterly earnings ahead of the market open, including Johnson & Johnson, Bank of New York Mellon, Travelers, Procter & Gamble and Philip Morris International. Netflix will report earnings after the closing bell.
Investors are using earnings and companies' guidance for the future to assess how corporations are faring with a number of issues. Inflation is expected to be stickier than originally anticipated by central-bank officials, exacerbated by continued supply-chain disruptions, higher energy costs and labor shortages.
About 81% of S&P 500 companies that have reported so far have beat earnings-per-share expectations, according to FactSet data through early Monday.
"It is a market now where you're going to see more differentiation because it is a more challenging environment," said Daniel Morris, chief market strategist at BNP Paribas Asset Management. "If you look at earnings so far, ex-financials, it's been very good."
U.S. housing starts, which are due at 8:30 a.m. ET, are expected to have moderated in September. Builders have been caught between strong demand from buyers-spurred in part by low interest rates-and shortages of materials, labor and lots.
Forex:
The dollar fell broadly, with the DXY dollar index dropping 0.4% to a three-week low of 93.5850, as risk appetite improves and amid uncertainty over whether U.S. President Joe Biden will give Federal Reserve Chairman Jerome Powell a second term, MUFG said.
Although Powell remains favorite to keep the job, questionable trading activities by two Fed bank presidents cast a cloud over his prospects, The Wall Street Journal reported last week.
"The decision does not appear as much as a done deal as before which has increased uncertainty and downside risks for the U.S. dollar," MUFG currency analyst Lee Hardman said. He added that recent dollar weakness has coincided with a rebound in global equity markets.
Bitcoin's dollar value edged up 1.3% from its 5 p.m. ET level Monday, trading at $62,258.17 Tuesday. The U.S.'s first bitcoin exchange-traded fund will start trading Tuesday under the ticker symbol BITO. Cryptocurrency analysts say they will be watching to see how strong flows into the fund are, to assess whether the cryptocurrency's recent price rally will hold.
The Bank of England could start raising interest rates in November but the pound is still likely to depreciate in coming months, MUFG Bank said.
"GBP is more likely to weaken heading into year-end given the more challenging backdrop of slowing global growth, higher inflation and tightening liquidity conditions, which should be less supportive for risk assets and high beta currencies like the pound," MUFG currency analyst Lee Hardman said.
BOE policy tightening could also be viewed as a policy mistake if the U.K. economy slows more notably, which would dent sterling, he said.
Bonds:
Inflation pressures are persistent but are likely to ease, said BlackRock, which doesn't consider the current situation as stagflation.
The asset manager keeps its moderately pro-risk investment stance on a tactical basis, even as it sees a narrower path for risk assets to rise.
It attributes inflationary pressures to the economic restart after the pandemic rather than to rising energy prices and it expects the near-term supply-demand imbalances to ease.
"We see the restart price pressures eventually resolving themselves, and believe central banks with credible policy frameworks will look through most of them," BlackRock said.
J.P.Morgan expects the European Central Bank's monetary policy meeting on Oct. 28 to provide some clarity on the form of monetary policy accommodation for the era after the Pandemic Emergency Purchase Programme, said rates strategists Fabio Bassi and Sampathh Vijay. In the short term, European rates will face uncertainty around the Bank of England's delivery in early November, they said.
However, JPM remains confident in fading the amount of excessive tightening expectations that are currently priced at the short end of the EUR curve. Eurozone government bonds sold off heavily Monday, causing yields to rise, amid inflation fears and some spillover from U.K. rate-rise expectations, but yields trade lower Tuesday.
Commodities:
Oil prices were higher, with both benchmarks paring most of their gentle Monday losses that came with the news of a fall in U.S industrial production and weaker GDP numbers out of China according to ING's Warren Patterson.
Markets were generally calm Tuesday, though investors are awaiting the release of the API's weekly inventory figures later in the day and the EIA's inventory data due Wednesday.
Benchmark European gas prices were down 2.3% after a volatile Monday during which worries that Russian producers won't follow through with more supply caused temporary price spikes.
Gold gained as the dollar slipped and investors worry about the impact of the energy crunch on inflation. Expectations that central banks will raise interest rates to tamp down inflation are keeping the precious metal in check, said TD Securities.
However, investors are likely overestimating how quickly the Fed will move to raise rates. The Fed is likely to look through inflation driven by the energy shock, they said. "This suggests gold is an ideal hedge against rising stagflationary winds, and reasons to own the yellow metal are growing more compelling," the bank said.
Copper prices rose on a weaker dollar and worries about supply disruptions in major producer Peru. A Peruvian community said they'd block a key road used by mining companies in protest over pollution and poverty.
Analysts said that even without those disruptions, the background for copper is bullish. Inventories are dwindling while demand remains strong, said Anna Stablum, at the brokerage Marex. "Focus was still on the tightening of spreads as traders scrambled to get hold of available metals and scrap markets were tight," she said.
TODAY'S TOP HEADLINES
Ericsson Net Profit Beats Despite China Sales Drop and Supply-Chain Issues
Ericsson AB on Tuesday posted a third-quarter net profit that beat expectations, as strong sales of 5G equipment in North America, Europe and Latin America helped offset a hefty sales decline in mainland China.
The telecommunications-equipment company reported second-quarter net profit attributable to shareholders of 5.75 billion kronor ($665 million) compared with SEK5.35 billion for the year-earlier period.
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Real-estate software and data firm VTS has agreed to acquire an app company that aims to simplify office life as more workers are heading back to their desks.
VTS, whose primary business is providing online tools to landlords for managing leases and tenant data, said it is buying Toronto-based Lane Technologies Inc. The price is about $200 million, according to people familiar with the matter, making it one of the largest proptech acquisitions ever.
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BHP Group Ltd. produced less iron ore, copper and steelmaking coal in its first fiscal quarter mostly because of planned maintenance work at its operations.
The world's biggest mining company by market value said it produced 63.3 million metric tons of iron ore in the three months through September, down 4% year-over-year and 3% lower than the quarter immediately prior.
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Chip-Designer Arm Sees Chip Shortage Lasting Through Next Year
The boss of chip-design specialist Arm Holdings says the semiconductor shortage will persist through next year, joining the growing list of executives forecasting that crippling supply pressures won't disappear soon.
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J&J Used Lenient Bankruptcy Rules to Push Talc Liabilities to Charlotte
Johnson & Johnson used the lenient venue-selection rules of U.S. bankruptcy law to push tens of thousands of talc-related cancer claims to its bankruptcy court of choice, roughly 600 miles south of the company's New Jersey headquarters.
The New Brunswick, N.J consumer goods giant follows other companies and nonprofits that have filed chapter 11 cases in venues far from their headquarters to weather lawsuits over harmful products or other alleged wrongdoing. Known as forum-shopping, the strategy of steering chapter 11 cases to specific courts feeds the perception that bankruptcy rules tilt the playing field in favor of large institutions, according to some scholars.
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Microsoft Xbox Chief Sees Game-Buying Spree Continuing
Microsoft isn't done with its acquisition spree in gaming as it looks for more companies to help make content for its popular Xbox, the software giant's gaming chief said.
"We're always out there looking for people who we think would be a good match and teams that would be a good match with our strategy, so we're definitely not done," Phil Spencer, Microsoft's executive vice president of gaming, said at The Wall Street Journal's Tech Live conference Monday.
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'CoComelon' Owner Moonbug Weighs Sale, IPO
Moonbug Entertainment Ltd., the company behind the hit children's show "CoComelon," is looking to cash in on its popularity by either selling itself or going public, according to people familiar with the matter.
(MORE TO FOLLOW) Dow Jones Newswires
10-19-21 0612ET
