European stocks continued a winning run ahead of a bumper day of U.S. 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."
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.
Shares on the move:
Shares in Reckitt Benckiser rise 5% after the consumer-goods group raised its full-year revenue guidance. The third-quarter update was positive, with the company increasing sales forecasts and maintaining margin guidance despite inflationary pressures and supply-chain issues, AJ Bell said.
It also has benefited from the sale of its troubled Chinese infant formula business and wider operational efficiencies.
"Health and hygiene sales are also proving stickier than expected as it becomes clear we're going to be living with the virus for longer than some anticipated when successful vaccines were first developed," Bell analyst Russ Mould said.
Data in focus:
Sentiment in the German export industry has taken a significant hit, the Ifo Institute said. In October, the Ifo export expectations index fell to 13.0 points from 20.5 points in September. This is its lowest value since February 2021, Ifo said.
"Supply problems in intermediate products are now having an impact on manufacturing exports," Ifo President Clemens Fuest said. In the electrical and electronics sector, export expectations have softened but remain at a high level, Ifo said.
However, the mood is bleaker in the chemical and the automotive industries. In the food and furniture industries, exports are expected to remain constant, Ifo said. The textile and leather industries are now preparing for declining international sales, the report said.
Stock futures gained as investors await earnings from Microsoft, Twitter and Alphabet.
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.
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.
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.
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.
The key task Christine Lagarde faces at the October policy meeting is "to calm market concerns about inflation and the ECB falling behind the curve," said Martin Wolburg, senior economist at Generali Investments.
Lagarde will have to walk a fine line in order to keep inflation expectations in check without being forced into outright policy actions by markets, the economist added.
Generali Investments expects recent remarks by Lagarde, including that the inflation spike is transitory and that the ECB continues to monitor the risk to the inflation outlook carefully "will also find their way into the October introductory statement, thereby stepping up the wording compared to the September meeting," Wolburg said.
J.P.Morgan sees stark inconsistency in monetary policy expectations priced in euro rates and money markets versus intra-eurozone spreads, it said, believing that spreads are reading the European Central Bank correctly.
"The euro money markets are now pricing a full 10 basis point hike from the European Central Bank in late 2022, which based on the ECB's forward guidance would argue a tapering of QE purchases by mid-2022 with net purchases ending by late 2022 at latest," JPM's strategists Aditya Chordia and Elisabetta Ferrara said.
A tapering and complete end of net asset purchases in 2022 isn't a consensus view, "and if true should have put widening pressure on intra-eurozone spreads during the recent sell-off, whereas intra-EMU spreads have moved broadly sideways over the period," they added.
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.
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.
Novartis 3Q Earnings, Sales Grow; Announces Strategic Review of Generics Division
Novartis AG said Tuesday that earnings and sales grew on-year in the third quarter and announced a strategic review of its generics division Sandoz, which could include separation of the business.
The Swiss pharma major posted net profit of $2.76 billion for the quarter, up from $1.93 billion the year prior, on sales which grew to $13.03 billion from $12.26 billion in the third quarter of 2020.
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