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North American Morning Briefing : Stock Futures Rise Ahead of Tech Earnings

10/26/2021 | 06:16am EST

MARKET WRAPS

Watch For:

U.S. S&P CoreLogic Case-Schiller Home Prices Index for August; U.S. New Home Sales for September; U.S. Conference Board -- Consumer Confidence for October; Raytheon Technologies Corp. 3Q results; General Electric Co. 3Q results; United Parcel Service Inc. 3Q results; Alphabet Inc. 3Q results; Microsoft Corp. 1Q results; Visa Inc. 4Q results; Twitter Inc. 3Q results.

Opening Call:

Stock futures gained ahead of a bumper day of earnings from some of America's largest corporations, including major tech names.

Tech behemoths Microsoft, Twitter and Google parent Alphabet are set to report earnings after markets close, part of a major week for an earnings season that has so far beaten investors' expectations and helped lift indexes out of a September slump.

Investors have been buoyed by strong figures from major banks, consumer companies and manufacturers. Meanwhile, jitters about the labor market and inflation have somewhat given way to optimism about a recovering economy.

"Covid numbers have crested, the economic data has been pretty good, and the early read on third quarter earnings is positive," said David Donabedian, chief investment officer at CIBC Private Wealth. "The bottom line is this is still a buy the dips market."

Facebook, which was among the first of the major tech firms to report third-quarter earnings, said late Monday that changes to Apple's privacy rules had hit sales growth. The social-networking company saw its shares rise 1.7% ahead of the opening bell, as the hit wasn't as large as some analysts had been expecting.

Tech firms are likely to remain attractive to investors, and their earnings should remain strong, despite the trend of fewer people working from home, and the risk of increasing regulation, said Mr. Donabedian.

"They are battleships-they just continue to post very strong revenue and earnings growth," he said.

Blue chip firms set to post earnings ahead of Tuesday's market open include United Parcel Service, General Electric, 3M, Raytheon Technologies and Lockhead Martin. Robinhood Markets and Visa are set to report after markets close.

Data on new home sales and consumer confidence are due at 10 a.m. ET, offering investors additional insight into the state of the economy. Home sales are forecast to pick up in September, while consumer confidence is expected to have weakened in October.

Forex:

The U.S. core personal consumption expenditures price index on Friday will be more important for the dollar's direction than third-quarter U.S. economic growth data on Thursday, BK Asset Management said.

The core PCE index, which is the Federal Reserve's preferred inflation measure, is seen hitting new highs and could drive interest rate rise expectations and the dollar higher, Kathy Lien, managing director of forex strategy at BK Asset Management, said.

"So even if GDP growth eases like economists expect because of softer retail sales and trade in the third quarter, taper expectations will remain intact if inflation is hot."

The euro looks set to continue trading around its current level or below ahead of the European Central Bank's policy decision on Thursday, Commerzbank said.

"As it stands there are likely to be just a few courageous EUR bulls in the run-up to the ECB meeting on Thursday," Commerzbank currency analyst Thu Lan Nguyen said.

"Even though no monetary policy decisions are expected for Thursday, the financial markets will nonetheless keep a close eye on the meeting and on the ECB council's view of the current high rates of inflation."

Positive market sentiment and the prospect of the Bank of England tightening monetary policy are lifting sterling, particularly against the euro, ActivTrades said.

Risk appetite is boosted by positive earnings, which tends to support sterling, while the market seems "increasingly convinced" that it's only a matter of time before the BOE raises rates, ActivTrades analyst Ricardo Evangelista said.

Bonds:

The yield on the benchmark 10-Year U.S. Treasury note inched up to 1.640% Tuesday from 1.634% on Monday. Bond prices and yields move in opposite directions.

In the past six weeks, the 10-year U.S. Treasury yield has increased by close to 40 basis points, while the two-year yield has hit its highest level since the start of the pandemic, but these moves haven't affected expectations for real yields, said Morgan Stanley Wealth Management.

In 2013, the last time the Fed began to normalize policy, real rates didn't lift off negative lows until balance-sheet growth bottomed. "With balance sheet growth still strong and real rates deeply negative, a revaluation may be ahead for long-duration assets," it said.

ECB President Christine Lagarde is likely to face questions about future asset purchases at her press conference on Thursday, following a significant tightening of financial conditions in bond markets over recent weeks, said Daiwa Capital markets.

Lagarde is likely to deflect questions on such issues as they are unlikely to be discussed until the December meeting, Daiwa said.

Should the Governing Council be concerned about the recent jump in yields, Lagarde may flag the possibility of an accelerated pace of net purchases if the bond market selloff continues, Daiwa said.

Commodities:

Oil prices pared some of their gentle early-week gains that came amid growing concerns over declining inventories at the key delivery hub at Cushing, Oklahoma, according to ING's Warren Patterson.

Balancing those supply concerns are reports that Iran and the European Union will meet to discuss the prospect of reviving the Iran nuclear deal. That would ultimately lead to the U.S. lifting sanctions on Iranian oil exports and increasing global supply by around 1.3 million barrels a day by the end of next year, Patterson said.

Copper prices weakened as LME stocks rise, easing concerns about an increasingly tight market. On-warrant stockpiles in LME warehouses climbed for the fourth day, after hitting their lowest level since 1998 earlier this month.

The inventory build was helping to ease concerns that strong demand for the metal and supply challenges were causing stocks to dwindle.

Aluminum fell due to declining thermal coal prices. The light-weight metal hit its highest level since 2008 earlier this month as input energy costs soared. China has said it is looking to take measures to tamp down high coal prices, which pushed the fuel's price down, bringing aluminum with it.

TODAY'S TOP HEADLINES

Pfizer-BioNTech Covid-19 Vaccine for Young Children to Be Reviewed by FDA Advisers

Experts advising the Food and Drug Administration are scheduled to meet Tuesday to consider endorsing the Covid-19 vaccine from Pfizer Inc. and BioNTech SE for use in young children.

Their positive recommendation would likely soon lead to an expansion of the U.S. vaccination campaign to millions of young children.

Novartis Weighs Sale or Spinoff of Generic Drug Unit Sandoz

Novartis AG said it is considering the sale or spinoff of its generic drugs business Sandoz, a move that would focus the once-sprawling healthcare conglomerate solely on innovative prescription drugs.

Sandoz, like many generic drugmakers, has struggled with falling prices in the U.S. in recent years. Generic drugs are lower-cost versions of prescription medicines whose patents have expired. While their prices are usually far below those of the branded drugs that they imitate, increased competition has driven those prices even lower in recent years.

UBS Third-Quarter Earnings Driven Higher by Fees From Wealthy Clients

UBS Group AG said fees from wealthy clients soared in the third quarter and its investment bank also reaped more revenue.

The Swiss bank said its third-quarter net profit rose 9% to $2.28 billion from $2.09 billion a year earlier. Analysts expected a net profit of about $1.6 billion. UBS said client activity was unusually high in the quarter and it expects it to slow down in the final three months of the year.

3-D Printed Houses Are Sprouting Near Austin as Demand for Homes Grows

A major home builder is teaming with a Texas startup to create a community of 100 3-D printed homes near Austin, gearing up for what would be by far the biggest development of this type of housing in the U.S.

Lennar Corp. and construction-technology firm Icon are poised to start building next year at a site in the Austin metro area, the companies said. While Icon and others have built 3-D printed housing before, this effort will test the technology's ability to churn out homes and generate buyer demand on a much larger scale.

Chinese Developer Modern Land Fails to Repay $250 Million U.S. Dollar Bond

Modern Land (China) Co., a 21-year-old developer that focuses on green projects, failed to repay a $250 million dollar bond that matured Monday, adding to a string of missed payments by Chinese real-estate companies.

In a statement Tuesday, the Beijing-based company attributed the missed payment to an unexpected cash crunch caused by "factors including the macroeconomic environment, the real-estate industry environment and the Covid-19 pandemic."

Banks' Debt Sales Are Driving the Corporate Bond Market

U.S. banks are overrun with cash. So they are loading up on debt.

The six largest U.S. lenders have issued some $314 billion of bonds so far this year, already the most for any year since 2008, according to Dealogic.

Cryptocurrency Company Snared in SEC Dragnet Sues Regulator

A cryptocurrency developer who was handed two subpoenas as he walked inside a hotel last month won't comply with the demands-and is instead suing the federal regulator that issued them.

Do Kwon, a South Korean citizen and resident, says the move by the Securities and Exchange Commission violated the agency's rules and was designed either to embarrass him or to stir up media interest in its crackdown on the cryptocurrency market.

Democrats Negotiate Tax, Healthcare Provisions as Biden Seeks Deal This Week

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10-26-21 0615ET

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