European stocks were broadly lower, led lower by shares of energy, travel and leisure companies.
Investors will pay attention to the European Central Bank's decision on asset purchases and interest rates.
President Christine Lagarde and most of the rest of the ECB are still in the inflation is transitory camp, at least for now. Of course, inflation isn't quite as red hot in the eurozone as it is in the U.S., with consumer prices up 3.4% year-over-year in September, compared to 5.4% in the U.S., but it still faster than what the ECB had said as recently as last month.
The bond market has reacted, pushing yields higher. A combination of surging energy prices and a solid rollout of vaccinations after a slow start is putting pressure on ECB policymakers.
"The question for the upcoming policy decision is just what the Governing Council and President Lagarde say or do to push back," said James Rossiter, head of global macro strategy at TD Securities. Already, there's been some pushback, with the ECB's chief economist, Philip Lane, saying "it's challenging to reconcile some of the market views with our pretty clear, straightforward forward guidance."
Ebrahim Rahbari, a currency strategist at Citi, also expects pushback, both to the rate rises priced into 2022 and 2023, as well as the idea of a reconsideration of the plan to end quantitative easing first and hike rates later. The ECB, Rahbari notes, is scarred by a history of premature rate hikes, and also is wary of raising risk for the periphery.
Shares on the move:
Shares in Shell were down 2.8% after the energy giant reported lower-than-expected earnings for the third quarter. Adjusted earnings of $4.14 billion are particularly disappointing and well below expectations of $5.42 billion, CMC Markets analyst Michael Hewson said.
"Given how much fossil fuel prices have risen this quarter, today's number are a particularly poor outcome, even if you factor in the disruptions from Hurricane Ida, which cost the business $400 million."
Shell has also noted higher costs elsewhere, but has said the fourth quarter would see a better performance due to lower maintenance costs, Hewson said.
Anheuser-Busch InBev, the world's largest brewer, reported a rise in revenue and profits, boosting shares 7.2%.
Data in focus:
Eurozone business and household confidence rose in October, beating forecasts of a decline.
The European Commission said Thursday that its economic sentiment indicator, an aggregate measure of business and consumer confidence, rose to 118.6 in October from 117.8 in September. The result is above a consensus forecast from economists polled by The Wall Street Journal, who expected the index to come in at 116.6.
The increase of the indicator in October resulted from improving confidence in services, construction and, to a lesser extent, retail trade, the European Commission said.
Sentiment rose in Spain, France, Italy, the Netherlands and Poland, while it weakened slightly in Germany.
German jobless claims fell much more than expected in October, the Federal Employment Agency said Thursday.
Jobless claims fell by 39,000 on month after declining by 31,000 in September. Economists polled by The Wall Street Journal had forecast a decline of 20,000.
The adjusted unemployment rate was at 5.4% in October, down from 5.5% in September and in line with the forecasts of economists polled by the Journal.
The number of registered job vacancies stood at 809,000 in October, up 206,000 on year, the agency said.
Spain's unemployment rate fell slightly in the third quarter of 2021 thanks to an easing of coronavirus-related restrictions that allowed the recovery of the services sector.
The country's unemployment rate declined to 14.57% in the third quarter from 15.26% in the previous quarter, Spanish statistics office INE said Thursday. Jobless claims fell by 127,100 in the quarter to a total of 3.42 million unemployed.
Stocks headed for muted opening gains as investors awaited data on U.S. economic growth and earnings from Apple and Amazon.com, among other major companies.
Ahead of the bell, shares of Ford Motor jumped 9%. The car maker late Wednesday restored its dividend and raised guidance for profits in 2021. eBay shares slid more than 5% premarket after the online marketplace gave projections for earnings that fell short of Wall Street expectations.
Forecast-beating results have soothed worries that supply-chain difficulties would dent profits, sending stocks higher in October. Earnings season continues at pace, with private-equity firm Carlyle Group and chocolate maker Hershey among those due to file before the opening bell, followed by Amazon and Apple after markets close.
"Earnings growth has been very strong," said Kiran Ganesh, multiasset strategist at UBS Global Wealth Management, adding that investors had also taken succor from slow progress in Washington toward legislation that would raise taxes on companies and wealthy individuals.
Still, the market has remained jittery at times as investors, lawmakers and central banks navigate the uneven economic recovery from the pandemic. Stocks fell Wednesday, for example, after the Bank of Canada's decision to end quantitative easing sparked volatility in global bond markets.
Data on how fast the U.S. economy grew in the third quarter will be released at 8:30 a.m. ET. Growth likely cooled as households and businesses confronted supply-chain disruptions, labor-market mismatches and the Covid-19 Delta variant. There is a range of estimates as to how much the economy slowed.
The dollar could fall in reaction to data later that are expected to show U.S. economic growth slowed in the third quarter, although only temporarily, ING said.
ING analysts said their forecasts are broadly in line with the consensus estimate of 2.6% quarter-on-quarter annualised growth for third quarter gross domestic product, compared to the second quarter's 6.7% growth, but they don't rule out a weaker number.
"Yet we are confident of the fourth-quarter U.S. rebound--the consumer and businesses are in good shape--such that any dollar weakness on the GDP data should find good buying interest," they said.
The euro edged lower as investors await the ECB's policy decision later. The ECB is likely to err on the side of caution and stick to its expansionary monetary policy so the market's expectations for the withdrawal of stimulus will be "disappointed," Commerzbank currency analyst Antje Praefcke said. "In my view the downside risks in EUR dominate today."
Sterling's appreciation potential looks limited as the Bank of England is likely to accept a "fairly significant" overshoot of its 2% inflation target given the headwinds facing the economy, Commerzbank said.
The 100 basis points of interest rate rises priced in by the market over the course of a year is unlikely, Commerzbank currency analyst Esther Reichelt said.
"The headwinds to be expected in the coming months from supply bottlenecks, the consequences of Brexit and the pandemic situation seem too substantial."
If the BOE doesn't counter rising price pressures with sufficient policy tightening, higher inflation will weigh on sterling's purchasing power, Reichelt said.
The Japanese yen seems "unattractive," particularly against the dollar, as the Bank of Japan is unlikely to change its loose policies any time soon, Commerzbank said after the central bank's interest rate decision.
Thursday's policy decision illustrated that the BOJ's "hands are tied" when it comes to monetary policy and that the market might be correct with its view that inflation will remain subdued, Commerzbank currency analyst Antje Praefcke said. The BOJ left its policies unchanged and cut its inflation and economic growth forecasts, while the central bank's governor Haruhiko Kuroda said the yen's recent weakness wasn't "bad" for the economy.
Pimco expects the ECB to reduce asset purchases gradually in the coming months, it said. Pimco forecasts a monthly asset purchase pace between EUR40 billion-EUR60 billion over the second quarter of next year, following the phasing out of the Pandemic Emergency Purchase Programme in March 2022, said portfolio manager Konstantin Veit.
The current pace is around EUR90 billion, with around EUR70 billion bought under the PEPP and EUR20 billion under the Asset Purchase Programme. The ECB is also likely to continue to review the asset purchases quarterly, with a view to gradually relegating them from a duration extraction tool to a pure policy rate signaling device over time, Veit said.
Santander Asset Management expects the first interest rate rise by the U.S. Federal Reserve by June 2023 and anticipates three rate hikes that year, with this outlook pulling U.S. Treasury yields higher, it said.
"We expect the 10-year [Treasury yield] to trade in the range 1.50%-1.70% in the coming months," the asset manager said. It also upgrades its view on U.S. government bonds slightly as yields have increased and closed part of the gap to its target.
That said, even after the upgrade, Santander AM views U.S. Treasurys as "underweight" versus "strong underweight" before.
Oil prices were lower, with both benchmarks extending this week's losses to between 2% and 3% after EIA inventory data showed a larger build up in U.S. crude inventories than either the market or Tuesday's API data predicted, said ING's Warren Patterson.
Also pressuring oil during the past couple of sessions has been the growing prospect that Iran and the EU could resurrect nuclear talks which have the potential to see oil export sanctions on Iran lifted.
European benchmark gas prices were down 11% after Russian President Putin told Gazprom to increase supplies to Europe once the country fills its own stocks in early November.
Metals prices were edging higher ahead of U.S. GDP and unemployment data. Investors are awaiting the U.S. economic data for insight into the strength of the economy.
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