MARKET WRAPS

Watch For:

Weekly Jobless Claims; Existing Home Sales for September; results from AT&T, Intel; OMFIF Live Broadcast with Federal Reserve Board Governor Christopher Waller

Opening Call:

Stock indexes were poised for muted opening losses as investors awaited another batch of earnings reports and data on the labor market.

Stocks have risen in recent days, after solid earnings helping quell concerns that sent markets lower at the start of fall. Among those worries: A slowdown in China's economy, supply-chain blockages that have hampered sectors such as manufacturing and inflation pressures that could prompt central banks to withdraw stimulus.

Of the 80 companies on the S&P 500 to have reported through Wednesday, 81% had topped analysts' earnings forecasts, according to FactSet, better than three-quarters that did so each quarter in 2019.

"We've gone through a period of hesitation that's brought a bit of volatility but I think stocks will keep trending higher," said Paul Jackson, head of asset allocation research at Invesco. He expects households to keep spending savings accumulated during the pandemic.

On the economic front, data due at 8:30 a.m. ET are expected to show jobless claims remained near pandemic lows for the week ended Oct. 16. Figures from earlier in the month show companies have been holding on tightly to existing employees while hiring is difficult.

Existing-home sales are expected to have rebounded in September after an August slowdown. The data are scheduled for 10 a.m.

Overseas markets were broadly lower. Shares of China Evergrande Group slumped 13% in Hong Kong after the embattled developer canceled plans to sell a majority stake in its property-management unit, a setback in attempts to ease its ongoing cash crisis.

Stocks to Watch:

The supply chain challenges brought on by the pandemic have forced CSX to leave some business on the table.

"We're clearly constrained," the railroad's CEO Jim Foote said on an earnings call. "There was more business out there this quarter...that we could not handle." He said the primary reason was the labor shortage and difficulty hiring workers. That's easing a bit and CSX thinks it will be in better shape to capitalize on strong demand for transportation services.

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HP is building its bet on peripherals as a growth engine around booming business in gaming, video conferencing and retail point of sale.

The peripherals business, from headsets to USB microphones and console accessories, offers high profit margins and refresh rates, company officials said during a conference call with analysts, pointing to what they see as a big business opportunity with an estimated 8.9% CAGR.

Gaming, now a more than $2 billion business for HP, offers a significant expansion opportunity; but it's work and learn, which includes remote and hybrid arrangements that got a pandemic tailwind, that HP sees as posing the biggest opportunity.

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Las Vegas Sands CEO Rob Goldstein said the company isn't concerned about the Macau government's next steps on issuing casino licenses.

"We've always found the government very reasonable, very thoughtful and very fair," Goldstein said on a call with analysts.

In September, the Macau government announced a 45-day process for revising its gambling laws, a step toward issuing casino licenses. The government has said it's considering increased scrutiny and control over casino operations. The six licenses expire in June.

Goldstein doesn't see a scenario where the company isn't operating in Macau. "We have no trepidation...that there will be an issue with this. We knew this was coming...and we're prepared for it. And we're also prepared to wait until the government tells us how they want to proceed."

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Car dealership chain Lithia Motors expects consumer demand for vehicles will remain high in the final months of the year.

"What we see in [the third quarter], we expect that to continue to [the fourth quarter]," said CFO Tina Miller, referring to demand for the company's products during the latest quarter.

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Pinterest is rolling out a redesign of the feed that breaks the user experience into two tabs. The browse tab retains the platform's traditional grid layout, while the new watch tab presents a scroll of full-screen Idea Pins, posts made up of multiple clips and images, created by influencers.

Pinterest is trying to connect users to influencers as well as respond to changes in how consumers want to interact with content, said Naveen Gavini, senior vice president of products. "The whole goal for us in the next few years and how we think about ourselves is really like an inspiration-to-realization platform," Gavini said.

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Tesla CFO Zachary Kirkhorn said the first vehicles from the new plants near Austin and Berlin shouldn't be expected to make it into customer hands this year.

The company still aims to have production at the sites starting before year end, but beginning deliveries will take a bit longer, including for regulatory reasons and to ensure a certain level of production quality. How fast production can ramp up also is uncertain, he said. "There is quite an execution challenge ahead of us."

Forex:

The dollar was slightly higher in Europe and Morgan Stanley said it stands to benefit from higher oil prices.

Forex strategist James Lord said the currency used to have a negative relationship with oil prices when the U.S. was a big energy importer but that is no longer the case, as the country has become self-sufficient. The prospect of the Federal Reserve taking action in response to energy-led price pressures will also support the dollar, Lord said.

"The Fed is quite sensitive to inflation and inflation expectations at the moment so I think as oil prices go up, it will put more pressure on the Fed to sound more hawkish compared to other central banks."

Recent weakness in havens such as the yen and the dollar may be limited by renewed concerns about Evergrande after the sale of its property-management unit was abandoned. This has increased pressure on Evergrande to raise cash elsewhere, as the 30-day grace period on some of its interest payments comes to an end this week, said IG.

Bank of America said ahead of the next FOMC meeting in November, at which the start of bond tapering is expected to be announced, "we expect the USD to be supported and the U.S. to continue to act as the main driver of global FX market." BofA said previous sharp rises in global yields during the June 2013 taper tantrum, September 2019's money-market squeeze and June's hawkish FOMC meeting were bullish for the dollar.

However, Ebury said the dollar should weaken over the next year even though the Federal Reserve could start tapering asset purchases as soon as November and raise interest rates in the second half of 2022.

Analysts at the London-based financial services firm said the dollar has continued to benefit from concerns about coronavirus and rising inflation pressures slowing the global recovery but these worries are perhaps "slightly overblown." Market sentiment will "take a turn for the better," especially once developing nations have rolled out vaccines to a larger share of their populations, they said.

Ebury expects EUR/USD to rise to 1.22 and GBP/USD to rise to 1.45 by the end of 2022.

Bonds:

Treasury yields remained elevated, with the 10-year note yield holding at a five-month high following Wednesday's 20-year auction and the Beige Book report, which indicated the U.S. economy was growing at a "modest to moderate rate" amid a low supply of workers and elevated prices.

Bond investors are particularly attuned to the prospects of a potentially faster pace of Fed tapering, which would suggest that the central bank may be inclined to raise interest rates faster than expected to quell intensifying pricing pressures.

Pimco expects bonds to continue to provide diversification benefits in terms of overall asset allocation.

"While return expectations should be muted across asset classes, there are states of the world in which bonds could outperform equities--especially on the basis of return per unit of volatility."

A period of high inflation is not Pimco's baseline outlook, nonetheless. It remains of the view that Treasury inflation-protected securities, or TIPS, commodities and other real assets make sense to help hedge against inflation risks.

"Although we see upside risks to interest rates over the short term as economies continue to recover, over the secular horizon we expect rates to remain relatively range-bound, enabling lower but positive returns for core bond allocations."

Commodities:

Oil futures were lower in Europe, giving back the modest gains made Wednesday after the EIA released bullish weekly data, according to ING's Warren Patterson.

Crude stocks at the key distribution hub of Cushing, which was in danger of running out of storage space last spring, are now at their lowest since 2018.

"Continued strength in oil prices means that pressure on OPEC+ to pump more will only grow," Patterson said. He said that while the U.S., India and Japan have all called for more crude, "the reluctance of OPEC+ to pump more in the short term suggests that oil prices will remain well supported...this year."

Gold prices were flat, with the precious metal caught between a stronger dollar and investors' concerns about stagflation.

Concerns about rising inflation and flagging growth could keep the metal-supported in the coming months, said Giovanni Staunovo, a strategist at UBS. "Inflation expectations are rising and growth expectations softening for the short run." He added, however, that stagnation concerns will likely be short-lived as the Fed is likely to raise rates.

UBS expects gold prices to edge down to $1,700 an ounce by the end of the first quarter of next year, falling to $1,600 an ounce by the end of 2022.

TODAY'S TOP HEADLINES

China Evergrande Calls Off Plans to Sell Key Unit for $2.6 Billion

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10-21-21 0553ET