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North American Morning Briefing : Stock Futures Fall After Weak China Growth Data

10/18/2021 | 06:08am EST

MARKET WRAPS

Watch For:

U.S. Industrial Production and Capacity Utilization for September; Canada Housing Starts for September.

Opening Call:

Stock futures edged lower after data showed that China's economic growth slowed sharply in the third quarter, and investors weighed the risk to global growth from stickier-than-anticipated inflation, supply-chain problems and heightened demand for energy.

Data out Monday showed China's economy grew 4.9% in the third quarter from a year prior, a slowdown from the second quarter's 7.9% rate. Power shortages and supply-chain problems added to the impact of Beijing's efforts to rein in its property and technology sectors.

The slower growth data are "a reminder that China is expected to lose some of its momentum, but also how these global issues like the energy crisis and supply chain issues will filter through to global growth," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "There's just a bit of rebasing of expectations for China and the rest of the world."

"We're in a mid-cycle slowdown," said David Chao, global market strategist for the Asia Pacific ex-Japan region at Invesco, adding that Chinese markets were in for continued uncertainty and volatility in the near term. Still, he added: "Keep in mind the government has many tools to propel the economy forward."

A strong start to earnings season has underpinned hopes that companies can weather mounting challenges. Albertsons and State Street are set to report quarterly results before the market opens.

U.S. industrial production data for September, due at 9:15 a.m. ET, is expected to show a seventh consecutive monthly increase. The measure of output at factories, mines and utilities has been buoyed by strong consumer demand for manufactured goods, though supply-chain disruptions and a semiconductor shortage could curtail auto production and drag down headline figures.

Forex:

Investors have raised their expectations on the Fed lifting interest rates following better-than-expected U.S. retail sales data on Friday, and this should continue to support the dollar, ING said.

"The strong release prompted one of our preferred metrics of Fed tightening expectations--the 1m USD overnight index swap priced three years' forward--to jump to a new high for the year," ING analysts said.

"This is a dollar positive, especially against low-yielding currencies with dovish central banks and against energy importers," they said. The Dutch bank expects the DXY dollar index to remain higher on Monday, trading in the range of 94.00 to 94.50.

Bitcoin, the world's largest cryptocurrency by market value, gained 4.1% from its 5 p.m. ET level Sunday to trade at $61,932.69. The U.S.'s first bitcoin exchange-traded fund is expected to start trading Tuesday.

The different policy paths that the Bank of England and the European Central Bank seem to be taking point to moderate strength for the pound against the euro, said Commerzbank.

"If ECB and BOE deliver what their governors are promising--i.e. rate hikes in the UK and at least a gradually expansionary monetary policy on the Continent--,what will matter going forward is which point of view seems more plausible over the coming months," said Commerzbank's Ulrich Leuchtmann.

The longer the accelerated inflation level persists, the more attractive the BOE's stance is likely to seem, he said.

The Turkish lira fell to a record low versus the dollar as the country's central bank is expected to cut interest rates further at Thursday's meeting despite elevated inflation.

The lira's recent slump is unlikely to prevent Turkey's central bank from lowering its policy rate again on Thursday after last month's 100 basis points cut, Commerzbank's Ulrich Leuchtmann said.

"The bank is no longer interested in the effects of its interest rate policy on exchange rates, inflation and in the end the stability of the Turkish economy." Ultimately the bank's decisions are taken by President Recep Tayyip Erdogan, who wants lower rates, Leuchtmann said.

Bonds:

In bond markets, the yield on the 10-year Treasury note ticked up to 1.603% Monday, from 1.574% Friday.

European core government bonds sold off early Monday on what KBC Bank attributes to the fact that high inflation readings continue to weigh on sentiment. "Core bonds remain in sell-off mode this morning as you can't look beyond the uncomfortably high inflation stories," KBC said.

It added that European money markets continue to pull forward a first interest rate rise by the ECB towards the end of 2022 or early 2023.

Commodities:

Brent crude oil rose with prices having begun their rise during Asian trading hours with coal prices rising there too. That suggests the Asian power crunch is back on investors' minds, said OANDA's Jeffrey Hally.

"With no signs of the China energy crunch alleviating soon, and with the rest of Northern Asia and Europe competing for scarce energy supplies, particularly gas, the price environment for oil remains constructive," he added.

European benchmark gas prices were down 2.5% at EUR91.31 per megawatt hour, after slipping on Friday in a move that "suggests the market has started to price in an expected normalization of Russian flows," said Goldman Sachs's Samantha Dart.

Copper prices rose to their highest level in five months as stockpiles dwindled and the energy crunch raises concerns about supply.

LME copper stock levels have been dropping almost constantly since August and currently stand at their lowest level since June.

"Focus remained on the tightening spreads as traders scramble for metals, " said brokerage Marex. Concerns about energy-related production shutdowns are also pushing investors to bet on higher prices still to come.

Speculators increased their net-long bets on all LME base metals except nickel last week, with the net long in zinc jumping 30% last week, the brokerage said.

TODAY'S TOP HEADLINES

Goldman Sachs Cleared to Own All of China Unit

Chinese regulators approved Goldman Sachs Group Inc.'s application to take full ownership of a key local unit, another step in China's gradual opening of its financial system to major players from the U.S. and elsewhere.

Goldman in December 2020 sought approval to increase its stake in a domestic Chinese business that it has co-owned since 2004. The New York-based bank said Sunday that China's financial markets regulator, the China Securities Regulatory Commission, had given its assent.

Read More ->

Facebook to Hire 10,000 Workers in EU to Build Up 'Metaverse'

Facebook Inc. is planning to create 10,000 jobs in the European Union over the next five years to build a virtual realm it sees as a key component of its future and a major driver of new technology investment.

The U.S. social-media giant said Sunday it would embark on a recruiting drive for highly skilled workers in the region to help build a "metaverse," an online realm where users engage with one another using technologies including virtual and augmented reality. The company said it would focus on hiring in Germany, France, Italy, Spain, Poland, the Netherlands and Ireland.

Read More ->

Saks E-Commerce Unit Begins IPO Preparations

The fast-growing e-commerce business of luxury retailer Saks Fifth Avenue is aiming to go public soon at a valuation roughly triple what it was pegged at earlier this year, in a sign of the boom times for online department-store sales.

Saks is interviewing potential underwriters this week for an initial public offering that could take place in the first half of 2022 and targets a valuation of around $6 billion, people familiar with the matter said. It was last valued at $2 billion in March.

Read More ->

Amtrak Hopes Infrastructure Bill Will Help Fund a Tunnel to Ease Delays on Northeast Corridor

BALTIMORE-When the Baltimore and Potomac Railroad completed its 1.4-mile tunnel in 1873, a local newspaper hailed it as "one of the greatest enterprises of the kind that has ever been executed."

Today, it is Amtrak's worst bottleneck on its most-traveled corridor between Washington and New Jersey. The passenger railroad plans to construct a new 2-mile tunnel several blocks away, and it is counting on funding in the roughly $1 trillion infrastructure bill to cover much of the project's $4 billion tab.

Read More ->

Facebook Says AI Will Clean Up the Platform. Its Own Engineers Have Doubts.

Facebook Inc. executives have long said that artificial intelligence would address the company's chronic problems keeping what it deems hate speech and excessive violence as well as underage users off its platforms.

That future is farther away than those executives suggest, according to internal documents reviewed by The Wall Street Journal. Facebook's AI can't consistently identify first-person shooting videos, racist rants and even, in one notable episode that puzzled internal researchers for weeks, the difference between cockfighting and car crashes.

Read More ->

Alibaba Faces New Threat: an Evolving Chinese Shopper

TAIPEI-Alibaba Group Holding Ltd., challenged by Beijing's yearlong clampdown on private enterprise, is facing another problem: growing competition.

For more than 15 years, Alibaba was China's unassailable e-commerce champion. The company founded by Jack Ma rose to become one of the world's biggest and most valuable businesses, using hard-knuckle tactics to muscle out challengers.

Read More ->

Hollywood Workers Reach Agreement With Studios, Averting Strike

LOS ANGELES-The film and television industry avoided a shutdown of production on Saturday evening after the International Alliance of Theatrical Stage Employees reached a last-minute, tentative agreement with studios and streaming services over worker demands.

IATSE leaders had been in talks for weeks with the organization representing studios and streaming services, the Alliance of Motion Picture and Television Producers. IATSE leaders had set a strike deadline of 12:01 a.m. PT on Monday.

Read More ->

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10-18-21 0607ET

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