North American Morning Briefing : Investors to Assess Heavy Slate of Earnings

10/14/2021 | 05:54am


Watch For:

Weekly Jobless Claims; PPI for September; EIA Weekly Petroleum Status Report; Canada Manufacturing Survey for August; results from Bank of America, Citigroup, Morgan Stanley, UnitedHealth, Wells Fargo

Opening Call:

Stock futures rose ahead of a wave of earnings, including from major banks, which investors will use to assess how companies are positioned to deal with risks including inflation and higher energy prices.

"Can companies weather those risks or was the entire rally only fueled by ultraloose monetary policy?" said Carsten Brzeski, ING's global head of macro research. Investors are looking to see "where are we in terms of the post-lockdown cycle and also to get some insights into how solid earnings and companies are going into this tapering period and this era of somewhat higher interest rates."

Data include jobless claims for the week ended Oct. 9, which are forecast to fall for a second consecutive week when figures are released at 8:30 a.m. ET, according to economists surveyed by The Wall Street Journal.

Overseas, the pan-continental Stoxx Europe 600 added 0.7%, while indexes in Asia closed with mixed performance.

Stocks to Watch:

Deere workers represented by the United Auto Workers union went on strike after an agreement over wages and benefits couldn't be reached with the agricultural equipment giant. The strike began around midnight Central time.

Workers earlier this week rejected a new, six-year collective bargaining agreement. The UAW said 90% of its members voted against the contract proposal, which would have provided workers with immediate raises of 5% to 6%.

The contract, which also included improved benefits, would have covered more than 10,000 workers at 14 facilities across the United States, according to Deere.

Deere said operations would keep running while talks with the union continued, but added it couldn't estimate when the strike might end.

"We are determined to reach an agreement with the UAW that would put every employee in a better economic position and continue to make them the highest paid employees in the agriculture and construction industries, " said Brad Morris, Deere vice president of labor relations, in a statement early Thursday.


The dollar continued to weaken in Europe and although the market largely shrugged off the higher-than-expected CPI reading, inflation fears haven't gone away, said DBS. It noted that data due later Thursday may show PPI surged 8.7% on year in September. However, DBS said there is still room for the USD Index to rise further toward 96.00 in the coming months.

Unicredit said a drop in the 10-year Treasury-German Bund yield spread below 170 basis points was also likely to be contributing to the dollar's decline.

"EUR/USD is showing resilience again re-approaching the 1.16 handle but has to break above 1.1650 to reduce selling pressure in a more convincing way."

Sterling's gains on speculation about an imminent U.K. interest-rate rise are expected to be limited, reflecting concerns about the nation's particularly severe supply chain issues, labor shortages and high inflation, said Commerzbank.

Many of the supply shortages that the world is experiencing reflect pent-up demand in the wake of coronavirus so are expected to be temporary but this view doesn't apply to the U.K. due to Brexit, said Commerzbank's Ulrich Leuchtmann. The U.K. also faces further political and economic risks from its stubborn position in post-Brexit negotiations, he added.

"Those make a stronger sterling impossible, despite rapid Bank of England rate hikes."

The Turkish lira fell to a record low versus the dollar after President Recep Tayyip Erdogan fired three central bank officials. Erdogan removed deputy governors Ugur Namik Kucuk and Semih Tumen along with Monetary Policy Committee member Adullah Yavas.

"Erdogan believes that cutting interest rates causes inflation to fall, and he tends to fire central bank employees, including governors, who disagree with him in this respect," said Oanda analyst Jeffrey Halley. "Readers should be pencilling in USD/TRY trading on a 10.0000 handle sooner rather than later."


The narrowing gap between shorter- and longer-term Treasury yields suggests investors expect the Fed might increase rates faster than they previously anticipated, which could slow growth further out in the future. Central-bank officials have said that much of the recent pickup in inflation is temporary and expect it to moderate in the years ahead, particularly as supply-chain bottlenecks ease.

"There's a lot more sensitivity to inflation data now," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. "The market is becoming more and more concerned that we are getting an inflationary shock."

Deutsche Bank analysts now expect the Fed to start raising short-term interest rates in December 2022 instead of the third quarter of 2023, in part due to rising inflation expectations, according to a report Wednesday. The bank predicts the central bank will maintain a gradual pace and the federal-funds rate will reach 1.9% by the end of 2024.

AXA Investment Managers said the latest inflation data from the U.S. and Germany shouldn't give central banks any reason to change their announced policy.

In the case of the Fed, it means a gradual scaling back of the bond-buying programs from November, followed by gradual rises of key interest rate from mid-2022, said Achim Stranz, chief investment officer. For the European Central Bank it means a similar strategy with a six- to 12-month time lag.


Oil prices extended their gains in Europe following the IEA's monthly market report release, showing forecasts for as much as 500,000 barrels a day of extra oil demand in the coming months as a result of gas-to-oil switching.

"An acute shortage of natural gas, LNG and coal supplies stemming from the gathering global economic recovery has sparked a precipitous run-up in prices for energy supplies and is triggering a massive switch to oil products and direct crude use for power generation," the IEA said, adding that power-generation plants, fertilizer producers, manufacturing operations and refineries are all affected.

Gold prices hovered close to a one-month high after the inflation data, which also pushed the dollar and Treasury yields lower, further helping bullion.


Effort to Bar Tech Companies From 'Self-Preferencing' Gains Traction

WASHINGTON-Legislation to bar internet companies from favoring their own products on their platforms is gaining more support, in what could be a potential threat to the business models of tech giants like Inc. and Apple Inc.

Bipartisan Senate legislation set to be unveiled on Thursday would prohibit dominant platforms from favoring their own products or services, a practice known as self-preferencing. It would also bar these dominant platforms from discriminating among business users in a way that materially harms competition.


Facebook Limits Employee Access to Some Internal Discussion Groups

Facebook Inc. has told employees it is tightening controls over some internal discussion groups, a move that comes after Frances Haugen, a former employee, gathered documents that formed the foundation of The Wall Street Journal's Facebook Files series showing the company's platforms are riddled with flaws that can cause harm.

Facebook provides staff online discussion groups on an internal message system called Workplace, where staff can cooperate or exchange ideas. In a memo to employees Tuesday, the social-media giant said it would restrict who can view group discussions on topics such as platform safety and election integrity, the company confirmed. The move to restrict internal data access was reported earlier Wednesday by the New York Times.


LaserShip Is Buying Package Carrier OnTrac in a $1.3 Billion Deal

Fast-growing parcel carrier LaserShip Inc. agreed to buy Western U.S. rival OnTrac Logistics Inc. in an approximately $1.3 billion deal aimed at extending the regional last-mile delivery specialist's reach across a wider swath of the U.S. at a time of surging e-commerce demand.

The transaction is expected to close at the end of October and would create a network allowing two-day shipping to 74% of the U.S. population, LaserShip Chief Commercial Officer Josh Dinneen said.


Netflix Employee Group Calls for Walkout Amid Tensions Over Dave Chappelle Show

Tensions are rising inside Netflix Inc. over a Dave Chappelle stand-up special that some employees said was offensive to the transgender community, the latest clash between the streaming giant's radical-candor culture and its embrace of creative freedom.

A Netflix transgender-employee group is encouraging staff to stage a walkout next Wednesday to protest Co-Chief Executive and Chief Content Officer Ted Sarandos's recent defense of Mr. Chappelle's special. The plans for a walkout were earlier reported by the Verge and confirmed by Netflix.


Deere Workers Go on Strike. They Want Higher Pay. --

Deere workers represented by the United Auto Workers union went on strike after an agreement over wages and benefits couldn't be reached with the agricultural equipment giant.

The strike began around midnight Central time.


Australian Miner Places $2 Billion Copper Bet on Green Energy Transition

South32 Ltd. bet on copper being in hot demand in an accelerating global energy transition with an investment of up to $2.05 billion in a Chilean copper mine, as big miners pivot to metals needed for electric vehicles and renewable energy infrastructure.

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10-14-21 0553ET

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