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North American Morning Briefing : Stock Futures Inch Up Ahead of GDP Data

10/28/2021 | 06:10am EST

MARKET WRAPS

Watch For:

U.S. Advance Estimate GDP for 3Q; U.S. Weekly Jobless Claims; Merck & Co. Inc. 3Q results; Caterpillar Inc. 3Q results; Mastercard Inc. 3Q results; Comcast Corp. 3Q results; Apple Inc. 4Q results; Amazon.com Inc. 3Q results; Starbucks Corp. 4Q results.

Opening Call:

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.

Overseas markets were broadly lower. The Stoxx Europe 600 fell 0.2%, led lower by shares of energy, travel and leisure companies. Anheuser-Busch InBev, the world's largest brewer, reported a rise in revenue and profits, boosting shares 7.2%.

Royal Dutch Shell shares slipped 2.4% after the energy company said it would halve emissions by 2030. The stock jumped Wednesday when The Wall Street Journal reported that Daniel Loeb's Third Point had taken a big stake in Shell and urged the company to break up.

Investors will also pay attention to the European Central Bank's decision on asset purchases and interest rates at 7:45 a.m. ET. Officials are expected to stick to loose-money policies, following the Bank of Japan, which maintained its target for short-term interest rates at minus 0.1% and its target for 10-year government bond yields at around zero on Thursday.

Forex:

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.

Bonds:

The yield on 10-year U.S. Treasury notes rose to 1.556% Thursday from 1.528% Wednesday.

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.

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.

Commodities:

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.

The data could also inform how quickly the Fed moves to raise interest rates. Copper is often seen as a barometer for economic growth, while gold is highly sensitive to investors' interest rate expectations.

TODAY'S TOP HEADLINES

Profit Falls at GM and Ford as Chip Shortage Takes Toll

The two largest U.S. auto makers reported steep drops in third-quarter profit as the computer-chip shortage dented factory output, and each said the problem would leave dealership lots nearly bare well into 2022.

Executives from General Motors Co. and rival Ford Motor Co. said the supply-chain disruptions should slowly improve in the fourth quarter and throughout next year, although strong car demand will make it difficult to restock dealership lots.

Hertz Links Up With Uber to Offer 50,000 Tesla Rentals

Hertz Global Holdings Inc. said Wednesday it is linking up with Uber Technologies Inc. to make 50,000 Teslas available in Uber's ride-sharing network by 2023, the latest in the rental-car company's efforts to build momentum postbankruptcy.

The deal comes days after Hertz, which collapsed into bankruptcy at the start of the Covid-19 pandemic last year, said it is making a significant investment in an EV rental fleet, including an initial order of 100,000 Teslas by the end of 2022 and new EV-charging infrastructure across the globe. The company exited Chapter 11 in June and has a stock listing planned for this year.

Shell 3Q Adjusted Earnings Fell as Hurricane Ida Hurt Business -- Update

Royal Dutch Shell PLC on Thursday reported that its earnings fell 25% in the third quarter after Hurricane Ida hurt its operations in the Gulf of Mexico.

The Anglo-Dutch oil-and-gas major said its adjusted earnings were $4.13 billion for the period, down from $5.53 billion in the second quarter and below market expectations of $5.31 billion, provided by Vara Research and averaged from 22 analysts' estimates.

WPP 3Q Revenue Grew in All Regions and Markets; Lifts 2021 Guidance

WPP PLC said Thursday that its third-quarter revenue grew and raised its full-year guidance.

Total revenue for the quarter was 3.24 billion pounds ($4.45 billion), up 9.1% on a reported basis and 14.7% on a like-for-like basis on year.

BOJ Lowers Outlook for Japan Growth, Inflation

TOKYO-The Bank of Japan lowered its growth forecast, reflecting supply-chain constraints that have weighed on exports and production, and said it didn't see significant inflation coming.

(MORE TO FOLLOW) Dow Jones Newswires

10-28-21 0609ET

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