North American Morning Briefing : Stock Futures Creep Up Ahead of Tech Earnings

10/25/2021 | 06:19am

MARKET WRAPS

Watch For:

Facebook Inc. 3Q results.

Opening Call:

Stock futures edged up ahead of a big week of earnings from major technology companies.

Facebook is scheduled to report third-quarter results Monday after markets close. Microsoft, Twitter and Alphabet, Google's parent company, are scheduled for Tuesday. Apple and Amazon.com are expected to report later in the week.

Strong earnings from banks, consumer companies and manufacturers have sent stocks higher over the past week and soothed investors' concerns that higher inflation and labor shortages could erode profits.

"One of the more notable takeaways from the earnings reports seen so far has been the ability of companies, for the most part, to pass on increases in prices onto their customers without seeing a drop in sales, " said Michael Hewson, chief markets analyst at CMC Markets.

Disappointing results last week from social-media company Snap, which warned that tougher privacy rules from Apple would likely crimp its advertising sales, could be a "canary in the coal mine for the rest of the tech sector," Mr. Hewson said. Should the tech giants reporting earnings this week also post dour outlooks, it "could see the mood sour quite quickly."

A key question remaining is how global central banks will respond to rising prices. Recent trading in short-dated U.K. gilts suggests investors think the British government may raise interest rates as soon as November. Investors await comments from the European Central Bank and the Bank of Japan, which both have meetings scheduled this week. The Federal Reserve has signaled a possible rate increase next year.

Money managers are also closely watching negotiations among U.S. lawmakers about the fate of President Joe Biden's sweeping social-policy spending package. House Speaker Nancy Pelosi said Sunday that she was optimistic an agreement could be reached this week on the framework for the legislation, and a vote on a separate infrastructure funding bill.

Government spending on that scale "will continue to support growth," said Esty Dwek, chief investment officer at Swiss online bank FlowBank. "The question now is more about taxes and how they will pay for it."

Overseas, the pan-continental Stoxx Europe 600 was relatively flat Monday. Among European equities, HSBC rose 0.8% after it reported a jump in third-quarter profit and said it would spend up to $2 billion on stock buybacks. UniCredit declined 2.2% after talks with the Italian government to acquire nationalized lender Monte dei Paschi collapsed. In Asia, major benchmarks were mixed.

Forex:

The dollar has derived little support from higher U.S. Treasury yields so far in October due to reduced safe-haven flows and a similar rise in yields in other G10 economies, MUFG Bank said.

"As a result yield spreads have not moved decisively in favor of the U.S. dollar," MUFG currency analyst Lee Hardman said. "The case for a stronger U.S. dollar is more compelling against the low yielding G10 currencies of the EUR, CHF and JPY where market participants are more comfortable that their domestic central banks will keep rates low despite higher inflation."

Bitcoin rose 1.9% Monday above its level at 5 p.m. ET Friday, trading around $61,900. The cryptocurrency has wavered after it cleared $66,000 to hit a new all-time high last week.

The Turkish lira depreciated 1.8% to its weakest level on record, trading at 9.8 lira to the dollar Monday, after President Recep Tayyip Erdogan threatened to expel the U.S. ambassador and top diplomats from nine other Western countries over the weekend.

Bonds:

The yield on the benchmark 10-year Treasury note ticked up to 1.661% Monday from 1.654% on Friday.

Pimco sees risks of central banks raising interest rates in the short term as economies continue to recover, said Joachim Fels, global economic advisor at the asset manager. Over a longer-term horizon, however, it expects interest rates to remain relatively low and range-bound, with lower but positive returns for core bond allocations.

"We think it makes sense to seek to maximize the opportunity in traditional fixed income strategies with flexible mandates," he said.

The European Central Bank is likely to use this week's meeting to cast doubt on the bond market's pricing of interest-rate rises before the end of 2022, said TD Securities.

President Christine Lagarde may echo recent comments by ECB chief economist Philip Lane that the ECB's forward guidance is clear and implies that interest-rate rises remain years away, said TD Securities.

"Thus President Lagarde is likely to use her podium to push back verbally on yields to the best of her ability," TD Securities said.

The question remains how much emphasis the ECB will put on pushing back against market interest-rate expectations, however, it said.

Commodities:

Oil prices rose, with comments from the Saudi energy minister that oil producers shouldn't take high energy prices for granted playing a role, according to DNB Markets's Helge Andre Martinsen.

The analyst added that similarly conservative comments from Nigeria and Azerbaijan are also having an effect, with the oil market "discounting diminishing chances of additional OPEC+ production."

On top of that Goldman Sachs said in a note that it estimates that "global oil demand has surpassed 99 million barrels a day and will shortly hit its pre-COVID level of 100 million barrels a day as Asia rebounds post the Delta wave," with gas-to-oil switching also contributing.

Gold prices rose despite higher bond yields as investors worry about inflation. A gauge of inflation expectations in the U.S. rose to a nine-year high last week, noted Daniel Briesemann, an analyst at Commerzbank, while a similar measure in the Eurozone is also rising.

"The markets are pricing higher inflation in more and more...and many market participants clearly believe that the current high level of inflation is no longer merely temporary," he said.

TODAY'S TOP HEADLINES

Facebook Expected to Post Slower Sales Growth With Apple Privacy Policy

Facebook Inc. is poised to post another quarter of record sales, though analysts expect changes in Apple Inc.'s app-privacy rules to have weighed on the social-media company's digital-advertising business.

Facebook's earnings, due Monday after market close, could show slower growth in ad sales, the company's primary source of revenue. It is the first full quarter since Apple, in April, required apps to ask users whether they want to be tracked. That change has made it harder for advertisers to target their ads at the right audience and get information regarding how well their ads performed.

HSBC Says It Will Buy Back $2 Billion in Stock as Profit Jumps

Global banking giant HSBC Holdings PLC said it would buy back up to $2 billion in stock after its third-quarter net profit jumped, as the lender released more provisions it had previously made for bad loans.

The London-based bank, which makes most of its profit in Hong Kong and mainland China, earned $3.54 billion in the three months to the end of September, up from $1.36 billion in the same period last year.

PayPal Says Not Pursuing Acquisition of Pinterest

U.S. payments giant PayPal Holdings Inc. said it isn't currently pursuing a deal for social-media platform Pinterest Inc., days after media reports that the companies were in early talks for a multibillion-dollar deal.

In a one-sentence statement dated Sunday on its website, PayPal said that "in response to market rumors regarding a potential acquisition of Pinterest by PayPal," the company "is not pursuing an acquisition of Pinterest at this time."

Tesla Supplier Shows Off More Powerful Battery

TOKYO-Tesla Inc. supplier Panasonic Corp. showed off for the first time a larger lithium-ion battery that it plans to supply to the U.S. electric-vehicle maker.

The 4680 cylindrical battery cell gets its name from being 46 millimeters in diameter and 80 millimeters high. It is larger than previous battery cells Panasonic has supplied to Tesla.

Francisco Partners Targets $2 Billion for New Fund Focused on Smaller Tech Deals

Private-equity firm Francisco Partners is targeting $2 billion for its third Agility fund, which will focus on smaller deals than the technology-focused firm's main vehicles, according to people familiar with the matter.

If Francisco Partners reaches its goal for the new fund it would be over 33% larger than its predecessor Agility fund, which closed with $1.5 billion last year. The San Francisco-based firm's maiden Agility fund collected $600 million in 2016.

Facebook's Internal Chat Boards Show Politics Often at Center of Decision Making

In June 2020, when America was rocked by protests over the death of George Floyd at the hands of a Minneapolis police officer, a Facebook employee posted a message on the company's racial-justice chat board: "Get Breitbart out of News Tab."

News Tab is a feature that aggregates and promotes articles from various publishers, chosen by Facebook. The employee's message included screenshots of headlines on Breitbart's website, such as "Minneapolis Mayhem: Riots in Masks," "Massive Looting, Buildings in Flames, Bonfires!" and "BLM Protesters Pummel Police Cars on 101."

Fed Prepares to Taper Stimulus Amid More Doubts on Inflation

Federal Reserve officials are set to wind down their $120 billion-a-month bond-purchase program in November, but questions over how soon inflation pressures will fade are creating more uneasiness inside the central bank.

Fed Chairman Jerome Powell and senior officials have played down worries this year that a surge in prices during the uneven pandemic recovery would lead to permanently higher inflation. The most notable price increases have been tied to items most affected by the shutdown and reopening of the economy, but there are signs that inflation is coming from a broader set of products and services.

Energy-Stock Surge Leaves Climate-Focused Investors Behind

(MORE TO FOLLOW) Dow Jones Newswires

10-25-21 0618ET

Copier lien
Latest news about "Markets"
20m ago
20m ago
21m ago
39m ago
39m ago