MARKET WRAPS
Stocks:
European shares posted modest gains Friday, supported by travel,
energy and bank stocks.
In London, the FTSE 100 continued to rally, hitting a 19-month
high, as the travel sector was lifted by the easing of coronavirus
testing rules for travelers returning to England. Energy shares
rose on higher oil prices while U.K. banks rallied after strong
earnings from U.S. rivals.
"After a choppy start to the week, equity markets appear to be
leaning towards a narrative that companies can continue to grow
profits, despite the combined pressures of higher energy prices,
and supply chain disruptions," wrote Michael Hewson, Chief Market
Analyst at CMC Markets UK.
"There still seems to be an element of complacency amongst
investors that rising energy prices won't prompt a wave of demand
destruction, especially if supply chain snarl-ups also feed into
higher prices, which consumers then can't absorb."
Shares on the move:
Hugo Boss stock rose 1.8% afer it raised its 2021 targets
following strong third-quarter results, which included
above-forecast sales and earnings that also topped pre-pandemic
levels. Track the analysts' views here.
---
Shares in OVHcloud climbed 6.8% on their first day of trading on
the Paris Euronext exchange. The French cloud-services provider had
priced its IPO at 18.50 a share, the lower end of a previously-set
indicative range of 18.50-20.
Shares in OVH seesawed in early trading, but subsequently rose
as high as 19.75.
---
Pearson shares fell 10% after the FTSE 100 education company
said it was on target to meet the consensus 2021 operating profit
forecast, but investors soured on its earnings, which showed
higher-education sales declined even as total sales grew.
Interactive Investor said the nine-month update showed higher
education sales have slipped 7% in 2021 to date, worrying
investors. It said Pearson has seen higher education numbers slip
with coronavirus infections in American colleges potentially
deterring new enrolments and signs of strength in the U.S. jobs
market offering an alternative.
Even after a significant decline in its share price since the
summer peak, Pearson's price-to-earnings ratio still trades above
three- and ten-year averages, suggesting shares are far from cheap,
said Interactive Investor. "For now, and given the company's
ongoing transition, analyst consensus opinion currently points to a
hold."
Economic insight:
Oil and gas prices have "exploded," imposing a burden on
consumers and businesses, said Commerzbank's chief economist Joerg
Kraemer, adding that rising prices will give the already high
inflation rates another push, while the headwind for growth will
increase.
"The loss of purchasing power will leave traces on private
consumption in the developed countries," said Kraemer. Even if
private households finance part of the additional costs by drawing
on savings made during the Corona-related lockdowns, private
consumption is likely to lose momentum in the coming quarters,
Commerzbank forecasts.
The economic slowdown expected in the U.S. and the eurozone this
winter thus becomes even more likely.
U.S. Markets:
The U.S. stock market was set to rise as investors looked past
concerns about inflation and supply-chain disruptions, confident
that corporate earnings this season would be strong.
The market mood has been further buoyed by more certainty on the
U.S. debt ceiling, after President Joe Biden signed a bill late
Thursday extending the debt limit and averting a federal default.
Looking ahead, limited catalysts next week in the form of economic
data raise the prospect of volatility driven by corporate earnings
-- and especially how companies view the outlook for 2022.
"The data calendar next week looks relatively quiet meaning that
a week of schizophrenic tail-chasing by markets on daily mood
swings in sentiment beckons," said Jeffrey Halley, an analyst at
broker Oanda. "The buy-everything like it's 2020 sentiment could
continue through next week though if U.S. earnings power
higher."
Forex:
The euro's recent rally versus the dollar looks set to lose
steam shortly as the European Central Bank isn't expected to change
its ultra-loose policy stance any time soon, said ING.
"EUR/USD remains almost solely driven by dollar dynamics and the
lack of any clear idiosyncratic upside catalyst for the euro is
likely limiting the pair's upside."
Profit taking is behind the dollar's "soft momentum" but this
won't last, said ING. The rebound in EUR/USD could follow a similar
path to that seen in first few days of October, therefore stalling
around the 1.1640 level.
Separately, ING said expectations of an aggressive U.K.
interest-rate rise continue to support sterling but this is likely
to prove temporary.
"Looking beyond today's price action, we still think sterling
may have to give up some of its recent gains as our economist
expects the Bank of England to underdeliver on monetary
tightening."
Sterling also appears "somewhat complacent" to the new
post-Brexit frictions and the material risk of the EU imposing
retaliatory trade measures should the U.K. unilaterally suspend
parts of the Northern Ireland protocol, said ING.
The dollar could weaken further on reduced safe haven flows if
data on retail sales and consumer sentiment later boost confidence
in the economic recovery, but any declines will be limited, said
Oanda.
Heavy speculative long dollar positions will cap gains as
investors look to trim those positions before the weekend, said
Oanda's Jeffrey Halley.
"The dollar index could revisit [Thursday's] lows at 93.75, but
only a weekly close under 93.50 suggests a deeper correction."
Bonds:
Inflation expectations have become a yield driver, said Helaba,
and expects investors to be reluctant to buy government bonds in
view of the high level of government debt.
Analysts at the bank expect the European Central Bank therefore
to continue to buy government bonds on a large scale, even as risk
premiums haven't widened, which is likely to ease the ECB's
concerns to some extent. The bank's analysts see the "gravitational
value" of 10-year Bund yields around 0%.
Citi said the yield differential between 10-year Portuguese and
German government bonds around 50 basis points looks "rich."
Citi sees Portugal's economic fundamentals as continuing to be
strong, benefiting from past reforms and from the fact that the
economic hit from the pandemic has been smaller compared to that in
periphery peers.
In addition, Portugal is returning to a conservative fiscal
stance, targeting a budget deficit of around 3% of GDP in 2022,
below the 5%-6% range targeted by Italy, Spain and France, said
Citi's rates strategist Aman Bansal.
However, many of these positives seems to be in the price
already "and we do not see meaningful scope for further
tightening."
Societe Generale has shrugged off the excessive market pricing
of tighter monetary policy faster than previously seen in the
eurozone, considering the inflation spike to be temporary.
"The European Central Bank's strong forward guidance and the
temporary nature of the spike in inflation should not be questioned
at this point, " said Societe Generale's rates strategists Adam
Kurpiel and Jorge Garayo.
Markets have started to price an acceleration in the
rates-tightening cycle, led by the U.S. and the U.K., the
strategists said, but added that euro rates should lag in this
process because the ECB is well behind its peers in stepping away
from policy accommodation. Accordingly, SocGen considers market
pricing of an ECB rate rise excessive.
Greece might secure its next credit rating upgrade on Oct. 22
when it lines up for a review by S&P, said Danske Bank. "Greece
is on positive outlook and we could see an upgrade." S&P's
rating on Greece is at BB with positive outlook.
Commodities:
Crude oil futures continued to rally in Europe, breaking fresh
multiyear highs after the IEA forecast on Thursday that gas-to-oil
switching, amid the continuing natural gas-supply crunch, would add
500,000 barrels a day to global oil demand over the coming
months.
Those bullish estimates were outweighing bearish inventory data
from the EIA late Thursday, said Helge Andre Martinsen at DNB
Markets. Gas markets were quieter Friday, with benchmark European
prices edging up 0.4% and taking their gains over the past three
months to 203%.
Base metals edged higher, supported by concerns that supply
could be crimped by the global gas crunch.
Three month copper on the LME was last up 0.3% and on course to
end the week 7.3% higher. That would be its biggest one-week jump
since 2016. Copper breached the $10,000 ton level Thursday for the
first time since June.
Other metals also rose, with aluminum up 0.5% and nickel rising
1.5%. Zinc added a further 0.7% to hit a three-year high, after a
major producer said it was cutting output at three sites in Europe
by half because of energy costs.
DOW JONES NEWSPLUS
EMEA HEADLINES
Rio Tinto Cuts 2021 Projection for Iron-Ore Shipments, Copper
Output
Rio Tinto PLC Friday said it expects to ship less iron ore than
previously anticipated from its Australian mining operations this
year because of delays to projects caused by labor shortages in the
country's west.
The world's second-largest miner by market value is also on
track to produce less copper and bauxite than it projected this
year in big part because of plant-related problems, the company
said on Friday.
Volkswagen Group Global Deliveries Fell Sharply in 3Q
Volkswagen AG said Friday that vehicle deliveries declined in
the third quarter amid the semiconductor shortage that is affecting
automotive production world-wide.
The German car maker said total group deliveries to customers
fell 24.5% to 1.97 million vehicles in the three months to
September. However, in the first nine months of the year, global
group deliveries were up 6.9% to 6.95 million vehicles.
Hugo Boss Lifts 2021 Targets After Strong Earnings, Sales Growth
in 3Q
Hugo Boss AG raised its 2021 targets as its third-quarter sales
and earnings exceeded pre-pandemic levels and market expectations,
the company said Thursday, citing preliminary results.
The German premium-apparel maker said it was revising up its
outlook and now expects sales adjusted for currency to rise by
roughly 40% this year, which compares to a previous forecast of a
growth of between 30% and 35%. Its earnings before interest and
taxes should now come between 175 million and 200 million euros
($203 million-$232 million) for the year, it said. Hugo Boss
previously said it was expecting EBIT between EUR125 million and
EUR175 million.
Pearson Sees 2021 in Line With Market Views
Pearson PLC said Friday that it has made good strategic progress
in the first nine months of the year, and that it was in line with
full-year adjusted operating profit market consensus.
The FTSE 100 education company said it experienced a strong
performance in Assessment and Qualifications over the period,
offsetting declining enrolments in Higher Education, with group
underlying revenue up 10%.
Eurozone Exports Rose on Month in August, Trade Surplus
Declined
Eurozone exports rose in August for the second consecutive
month, posting a modest increase amid slower global trade.
The European Union's statistics agency said Friday that the
currency area's exports rose by 0.3% in August from July, while
imports increased 1.6%, both adjusted for seasonal variations. The
seasonally adjusted trade surplus was 11.1 billion euros ($12.9
billion) compared with EUR13.5 billion in July.
EU New Car Sales Fell in September Amid Chip Shortage
Passenger-car registrations in the European Union declined in
September amid the current shortage of semiconductors, the European
Automobile Manufacturers Association said on Friday.
New car registrations--a reflection of sales--declined 23%
year-on-year to 718,598 vehicles for the month, said the
association, also known as ACEA. The EU's major markets--Spain,
France, Italy and Germany--all reported strong decreases.
U.S., European Nations Claim Progress on Path to Removing
Digital Taxes
The U.S. and five European countries have reached an agreement
on how those countries' digital-service taxes would be withdrawn as
a broader international agreement moves forward, French Finance
Minister Bruno Le Maire said on Thursday.
The deal isn't likely to yield an immediate withdrawal of those
taxes because it is still linked to the broader global tax
agreement being completed and implemented over the next few years.
But having a path forward could ease tensions between the U.S. and
France, Italy, the U.K., Austria and Spain.
GLOBAL NEWS
Consumer Spending Seems to Be Steady Despite Supply Crunch
U.S. consumers continue to spend, despite supply constraints
causing a shortage of vehicles and other goods.
Economists surveyed by The Wall Street Journal estimate that
September retail sales fell a seasonally adjusted 0.2% in September
from the previous month, with car purchases declining as few
vehicles were on dealer lots. Excluding autos, sales are estimated
to have risen 0.5% as households shrugged off the end of enhanced
unemployment benefits and high Covid-19 case levels caused by the
Delta variant.
Trading Furor Complicates White House Decisions on Fed
Leadership
Federal Reserve Chairman Jerome Powell's chances for a second
term leading the central bank so far have been dented but not
derailed by a reputational crisis over stock-trading disclosures by
senior officials.
Mr. Powell, a Republican, has been the front-runner to keep the
job when his term expires early next year. But questionable trading
activities by two Fed bank presidents, first reported last month by
The Wall Street Journal, cast a cloud over his prospects by giving
a vocal minority of Democrats who already opposed his nomination
new grounds to call for his replacement.
Fed's Thomas Barkin Unsure Economy Can Recover All Jobs Lost in
Pandemic
Federal Reserve Bank of Richmond President Thomas Barkin said
changes in the economy could mean that some workers who left the
job market during the pandemic won't return.
Citing the number of pre-pandemic jobs that haven't been
recovered, Mr. Barkin said, "I'm in the mood of giving a little
more time to see whether these five million people come back" to
the labor force, but added that might not happen, during a speech
in New York on Thursday.
Biden to Press Climate Agenda on Wall Street
WASHINGTON-Calling climate change a systemic risk to the
financial system, the White House will release a report Friday
outlining its strategy for new rules that could affect investment
disclosures, insurance policies and home loans.
The report outlines administration goals, including forcing
financial firms to more directly address the risks of climate
change, creating new protections for savings and pension plans and
making climate change more a factor in federal budgeting and
procurement.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
October 15, 2021 06:07 ET (10:07 GMT)
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