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North American Morning Briefing: Stock Futures Edge Up Ahead of Coca-Cola, McDonald's Earning

MARKET WRAPS

Watch For:

U.S. Durable Goods for September; Bank of Canada rate decision; EIA Weekly Petroleum Status Report; Coca-Cola Co. 3Q results; Boeing Co. 3Q results; Kraft Heinz Co. 3Q results; General Motors Co. 3Q results; McDonald's Corp. 3Q results; Ford Motor Co. 3Q results; Suncor Energy Inc. 3Q results.

Opening Call:

Stocks were poised to trade around record highs as investors awaited results from more of the biggest U.S. companies.

Solid quarterly earnings from American corporations have quelled the investor concerns about supply-chain problems, inflation and Chinese economic growth that rattled markets at the start of fall. The S&P 500 is up 6.2% for October and on course for its biggest monthly advance since November.

"Investors got fairly gloomy in September, clearly against the backdrop of all sorts of macro concerns," said Paul O'Connor, head of the multiasset team at Janus Henderson Investors. "The broader story from results is that companies are managing these dynamics pretty well, and also managing expectations fairly well."

Money managers still have worries, ranging from the fate of President Biden's infrastructure and social-spending plans to the potential unwind of Federal Reserve stimulus measures that have goosed markets since early 2020. For now, though, many investors say they are sticking with stocks in the expectation of modest if bumpy returns through the end of the year.

Results from Coca-Cola, McDonald's and Kraft Heinz, expected before the opening bell, will offer clues about how companies are navigating shortages of workers and raw materials. Harley-Davidson, Boeing and General Motors will also report before the stock market begins to trade, while Ford Motor and eBay are on the block after markets close.

On the economic front, data on orders of durable goods are due to be released at 8:30 a.m. ET. Economists polled by FactSet expect orders to have fallen 1% in September from August, reflecting disruption to supply chains in the auto industry and other sectors.

There were broad declines in overseas markets. The Stoxx Europe 600 fell, pulling back from its second-highest close on record as shares of resource, auto and financial companies lost ground. Deutsche Bank slid 4.3% after the German lender reported a fall in investment-banking revenue.

Asian markets fell after American officials barred China Telecom, China's biggest telecom operator, from doing business in the U.S., adding to investor concerns over tensions between the two biggest economies.

Forex:

The dollar faces a hit from potentially weaker-than-expected third-quarter U.S. economic growth data on Thursday as the recovery is likely to have lost considerable momentum over the summer, Commerzbank said.

"If the market was to be disappointed it might postpone its expectation of an imminent [interest rate] lift-off, with the dollar being sold off short-term," Commerzbank currency analyst Antje Praefcke said.

With Federal Reserve officials entering the blackout period in the run-up to the November 2-3 policy meeting, the market is relying on economic data to confirm its interest rate expectations, she said.

The European Central Bank is likely to deliver a neutral message at Thursday's policy meeting that prompts the market to scale back its interest rate rise expectations and weakens the euro, ING said.

Expectations for the deposit rate to be raised by 10 basis points in late 2022 face a "reality check" as the ECB will avoid suggesting the debate over the withdrawal of stimulus is "leaning in any clear direction," ING analysts said.

That could dent the euro, but only marginally as the currency has showed little reaction to recent policy decisions, they said. EUR/USD could fall below 1.15 in November, versus 1.1596 currently, although seasonality trends in December may see it recover towards 1.1700 at year-end, they said.

Bonds:

In the bond market, the yield on 10-year Treasury notes ticked up to 1.626% Wednesday from 1.618% Tuesday.

Volatility looms for global bond markets due to the prospect of asset-purchase tapering at the next Federal Reserve meeting in early November, said Simon Lue-Fong, head of fixed income at Vontobel.

However, any rise in yields will likely prove a blip within a larger downward trend in yields that is driven by powerful structural forces such as digitalization and demographics, he said.

"All eyes are currently on the Fed but in the greater scheme of things tapering won't be the catalyst for a real change in direction of yields, " he said.

Credit markets would gain from investors taking profits in stocks, said Mizuho. Analysts at the bank see potential for profit-taking flows out of equities.

"Equities continue to perform well and the question once again becomes how far do indices need to rise to induce profit-taking in size," they said. If equities "are indeed vulnerable to investors taking profit, credit is likely the place to be."

However, if the lasting impression is that of a relatively positive third-quarter earnings season, investors may decide to stay invested in equities rather than increase fixed-income exposure, they said.

Commodities:

Oil prices were down after the American Petroleum Institute released data late Tuesday showing rises in U.S. crude oil, gasoline, and distillate fuel inventories.

Those figures come despite recent fears over falling supply--the crucial distribution hub of Cushing, Oklahoma continues to see falling inventory numbers, and Saudi Aramco on Tuesday raised concerns about the world's falling spare oil capacity.

Still, though, those remarks from Aramco are "at odds with what OPEC+ are forecasting for next year," noted ING's Warren Patterson, adding that the group expects strong non-OPEC supply growth in 2022 and ING's forecasts show a market in surplus in 2022.

Aluminum prices fell close to a two-month low as supply concerns ease. The metal has fallen over the past two weeks after hitting a 13-year high. Rising energy costs initially raised concerns that energy-intensive aluminum smelters could cut back on production. But China has been taking steps to curb rising coal prices, the latest of which is China's state planner asking coal-producing provinces to probe illegal storage sites and crack down on hoarding.

Prices for Chinese thermal coal, which powers much of the nation's aluminum smelters, have dropped over 9% this week as of Tuesday. Falling coal prices are easing concerns in the aluminum market.

   
 
 
   
 
 

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October 27, 2021 06:09 ET (10:09 GMT)

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