European stocks traded mixed ahead of further key earnings
reports later from Wall Street tech giants.
Investors seized on strong corporate earnings last week to help
markets shake off a funk that had weighed on stocks for much of the
Roughly 85% of the companies in the S&P 500 that have
reported earnings beat Wall Street's expectations, compared with
the five-year average of 76%, according to Jim Reid, a strategist
at Deutsche Bank.
However, "a large part of the beats so far is due to loan-loss
reserve releases by banks," Reid noted. "Excluding those, the
aggregate S&P 500 beat is running much closer to historical
average, suggesting the headline beats have not been as broad-based
as they look at first glance."
A key question remaining is how global central banks will
respond to rising prices. Recent trading in short-dated U.K. gilts
suggests investors think the British government may raise interest
rates as soon as November. Investors await comments from the
European Central Bank and the Bank of Japan, which both have
meetings scheduled this week. The Federal Reserve has signaled a
possible rate increase next year.
Money managers are also closely watching negotiations among U.S.
lawmakers about the fate of President Joe Biden's sweeping
social-policy spending package. House Speaker Nancy Pelosi said
Sunday that she was optimistic an agreement could be reached this
week on the framework for the legislation, and a vote on a separate
infrastructure funding bill.
Government spending on that scale "will continue to support
growth," said Esty Dwek, chief investment officer at Swiss online
bank FlowBank. "The question now is more about taxes and how they
will pay for it."
S&P Global Ratings affirmed Italy's credit rating at 'BBB'
and revised the outlook to positive from stable on Friday, it
The improved outlook reflects S&P's view that Italy's
progress in implementing reforms will boost economic growth and
benefit fiscal consolidation, the ratings firm said. The European
Central Bank's steps since the start of the pandemic have also
supported Italy's investment-led recovery, it added.
S&P forecasts Italy's budget deficit at 8.8% of GDP in 2021,
below the government's 9.4% target, as revenue continues to exceed
budgetary assumptions, it said.
Shares on the move:
UniCredit investors could be somewhat disappointed by the
collapse of its negotiations to acquire parts of Monte dei Paschi
in the short term, Citi analysts said.
"A part of the market might have included some benefit from a
potential MPS deal... given the preliminary criteria set (EPS
accretive, capital neutrality, risk mitigation)," Citi said.
In the medium term, however, UniCredit shares have strong
potential to re-rate based on the bank's attractive capital return
and its strategy to refocus on Italy and improve profitability and
growth, Citi said. UniCredit shares fell 1.1%.
Darktrace fell 10.5% in London, after broker Peel Hunt initiated
coverage of the cybersecurity stock with a rating of 'sell' and
target price for the shares nearly half of the closing price
Friday. Analysts saw a disconnect between the company's valuation
and the revenue opportunities.
Data in focus:
Fiscal support in the four largest eurozone member
states--Germany, France, Italy and Spain--is likely to remain
elevated beyond the pandemic-related relief measures in 2020 and
2021, economists from Goldman Sachs said.
While it is expected deficits will to fall to around 4% of GDP
next year before shrinking further to 3% in 2023, the positive
impulse on European growth should persist until 2024, the bank
"The sustained fiscal impulse is a key reason why we remain
constructive on the European activity outlook despite the near-term
headwinds and our updated fiscal impulse points to some upside risk
to our 2023-24 growth projection," GS said.
Germany's Ifo business climate index dropped in October for the
fourth month in a row, showing that the growth enthusiasm of the
summer months has completely gone up in smoke, ING's global head of
macro Carsten Brzeski said.
Both the current assessment and the expectations component
weakened, suggesting that there is very little hope for a quick
turnaround from the current loss of momentum in the German economy,
the economist said.
Brzeski said it could take until next summer before all
supply-chain disruptions have been resolved and the same holds for
energy prices. All of this means that there is the clear risk that
the German economy won't reach pre-crisis levels this year, Brzeski
The fourth consecutive decline in the Ifo business climate index
is a warning signal, Commerzbank's chief economist Joerg Kraemer
said. Companies expect politicians will react to the sharp rise in
Covid-19 cases with new restrictions and fear the surge in
infections may lead to factory closures, especially in Asia, which
will exacerbate supply shortages globally, the economist said.
Due to rising infections, the shortage of materials and the
catch-up process in the services sector being almost completed,
growth in the German economy is likely to slow massively in the
Commerzbank forecasts 0.2% GDP growth in 4Q compared to 3Q,
while inflation is likely to pick up further. "Stagflation is on
the horizon for 4Q at least," Kraemer said.
Stock futures edged up ahead of a big week of earnings from
major technology companies.
Facebook is scheduled to report third-quarter results Monday
after markets close. Microsoft, Twitter and Alphabet, Google's
parent company, are scheduled for Tuesday. Apple and Amazon.com are
expected to report later in the week.
Strong earnings from banks, consumer companies and manufacturers
have sent stocks higher over the past week and soothed investors'
concerns that higher inflation and labor shortages could erode
"One of the more notable takeaways from the earnings reports
seen so far has been the ability of companies, for the most part,
to pass on increases in prices onto their customers without seeing
a drop in sales, " said Michael Hewson, chief markets analyst at
Disappointing results last week from social-media company Snap,
which warned that tougher privacy rules from Apple would likely
crimp its advertising sales, could be a "canary in the coal mine
for the rest of the tech sector," Mr. Hewson said. Should the tech
giants reporting earnings this week also post dour outlooks, it
"could see the mood sour quite quickly."
The dollar has derived little support from higher U.S. Treasury
yields so far in October due to reduced safe-haven flows and a
similar rise in yields in other G10 economies, MUFG Bank said.
"As a result yield spreads have not moved decisively in favor of
the U.S. dollar," MUFG currency analyst Lee Hardman said. "The case
for a stronger U.S. dollar is more compelling against the low
yielding G10 currencies of the EUR, CHF and JPY where market
participants are more comfortable that their domestic central banks
will keep rates low despite higher inflation."
Bitcoin rose 1.9% Monday above its level at 5 p.m. ET Friday,
trading around $61,900. The cryptocurrency has wavered after it
cleared $66,000 to hit a new all-time high last week.
The Turkish lira depreciated 1.8% to its weakest level on
record, trading at 9.8 lira to the dollar Monday, after President
Recep Tayyip Erdogan threatened to expel the U.S. ambassador and
top diplomats from nine other Western countries over the
Sterling looks set for a quieter week of trading even as the
U.K.'s Treasury chief Rishi Sunak releases his fiscal spending plan
on Wednesday. "After all the excitement of the re-pricing of the
Bank of England cycle last week, expect GBP and rate markets to
take a breather this week," ING analysts said.
That has left GBP/USD trading in a 1.3730-1.3830 range, which
should hold over coming days, they said.
Sunak is unlikely to make any major announcement on fiscal
consolidation strong enough to prompt the market to rein in its
interest rate rise expectations, they said.
Pimco sees risks of central banks raising interest rates in the
short term as economies continue to recover, said Joachim Fels,
global economic advisor at the asset manager. Over a longer-term
horizon, however, it expects interest rates to remain relatively
low and range-bound, with lower but positive returns for core bond
"We think it makes sense to seek to maximize the opportunity in
traditional fixed income strategies with flexible mandates," he
The ECB is likely to use this week's meeting to cast doubt on
the bond market's pricing of interest-rate rises before the end of
2022, said TD Securities.
President Christine Lagarde may echo recent comments by ECB
chief economist Philip Lane that the ECB's forward guidance is
clear and implies that interest-rate rises remain years away, said
"Thus President Lagarde is likely to use her podium to push back
verbally on yields to the best of her ability," TD Securities
The question remains how much emphasis the ECB will put on
pushing back against market interest-rate expectations, however, it
Oil prices rose, with comments from the Saudi energy minister
that oil producers shouldn't take high energy prices for granted
playing a role, according to DNB Markets's Helge Andre
The analyst adds that similarly conservative comments from
Nigeria and Azerbaijan are also having an effect, with the oil
market "discounting diminishing chances of additional OPEC+
On top of that Goldman Sachs said in a note that it estimates
that "global oil demand has surpassed 99 million barrels a day and
will shortly hit its pre-COVID level of 100 million barrels a day
as Asia rebounds post the Delta wave," with gas-to-oil switching
Gold prices rose despite higher bond yields as investors worry
about inflation. A gauge of inflation expectations in the U.S. rose
to a nine-year high last week, noted Daniel Briesemann, an analyst
at Commerzbank, while a similar measure in the Eurozone is also
"The markets are pricing higher inflation in more and more...and
many market participants clearly believe that the current high
level of inflation is no longer merely temporary," he said.
HSBC Says It Will Buy Back $2 Billion in Stock as Profit
Global banking giant HSBC Holdings PLC said it would buy back up
to $2 billion in stock after its third-quarter net profit jumped,
as the lender released more provisions it had previously made for
The London-based bank, which makes most of its profit in Hong
Kong and mainland China, earned $3.54 billion in the three months
to the end of September, up from $1.36 billion in the same period
Talks Collapse Over Sale of Troubled Italian Bank Monte dei
Monthslong talks between the Italian government and bank
UniCredit SpA over the sale of nationalized lender Banca Monte dei
Paschi di Siena SpA have ended, UniCredit and the government said
The collapse of the negotiations is a blow to the government
headed by former European Central Bank President Mario Draghi,
which needs to reprivatize the bank by April under an agreement
struck with European authorities when Rome rescued the Tuscan bank
German Business Sentiment Declined Again in October
German business sentiment worsened again in October, as supply
bottlenecks clouded the short-term outlook.
The Ifo business-climate index decreased to 97.7 points in
October from 98.9 points in September, data from the Ifo Institute
showed Monday. This is the fourth consecutive decrease of the
indicator after it peaked at 101.8 in June.
Volvo Cars Prices IPO at Bottom of Range Ahead of Stockholm
Volvo Cars, the Swedish auto maker owned by China's Zhejiang
Geely Holding, on Monday priced its initial public offering at the
bottom of the indicative range and reduced the size of its share
offering ahead of its Stockholm listing.
Volvo said it has set the price of its initial public offering
shares at 53 kronor ($6.18) each, having previously indicated a
price range of between SEK53 and SEK68 each.
Supply-Chain Disruptions Encourage Rio Tinto to Mine Its Own
Sludge for Critical Minerals
Snarled supply chains are giving new impetus to Rio Tinto PLC's
efforts to produce minerals essential for modern technologies,
starting with mining sludge from a giant copper pit in Western
Waste produced at Rio Tinto's Kennecott mine near Salt Lake
City, Utah, contains a clutch of critical minerals that have long
been overlooked by global miners in favor of copper and commodities
that can be produced at scale and sold into markets with a deep
pool of investors. Now, these lesser-known minerals are becoming
more valuable as the U.S. and its allies worry about security of
supply amid geopolitical tensions and disruptions in exporting
countries due to the pandemic and a power crunch.
Sibanye-Stillwater Nears $1 Billion Deal to Acquire Brazil
Nickel and Copper Projects
Sibanye-Stillwater Ltd. is in advanced talks to buy two
Brazilian mining companies for about $1 billion including debt, a
bet on continued demand for metals used in the production of
The South Africa-based miner confirmed the talks Monday, without
disclosing the valuation under discussion, after The Wall Street
Journal reported they were taking place.
Co-Operative Bank Approaches Banco De Sabadell to Buy TSB
The Co-operative Bank PLC said Monday that it has sent a letter
to Banco de Sabadell SA over the potential acquisition of
Sabadell's U.K. subsidiary TSB Banking Group.
The U.K. lender, which was responding to weekend press reports,
said that no talks are currently taking place between the two
SSAB 3Q Net Profit Beat, Cautions on Auto Demand Amid
Swedish steelmaker SSAB AB on Monday posted a
bigger-than-expected rise in third-quarter net profit, driven by
high steel prices.
The company said third-quarter net profit rose to 4.48 billion
Swedish kronor ($522.2 million) from a loss of SEK741 million a
year earlier, as sales rose 74% to SEK25.22 billion.
SolarWinds Hackers Continue to Hit Technology Companies, Says
The Russia-linked hackers behind last year's compromise of a
wide swath of the U.S. government and scores of private companies,
including SolarWinds Corp., have stepped up their attacks in recent
months, breaking into technology companies in an effort to steal
sensitive information, cybersecurity experts said.
Turkey's Erdogan Threatens to Expel 10 Western Ambassadors,
Including U.S. Envoy
Turkey's President Recep Tayyip Erdogan threatened to expel the
U.S. ambassador and the top envoys of nine other Western countries
who called for the release of a jailed philanthropist, in a move
that could further strain ties between the two NATO allies.
"These 10 ambassadors must be declared personae non gratae at
once," Mr. Erdogan said at a rally on Saturday in the western
Turkish city of Eskisehir. "I gave the necessary order to our
foreign minister and said what must be done."
Sudanese Prime Minister Detained in Apparent Military Coup
Sudan's prime minister was detained following an apparent
military coup of the transitional government that has been ruling
the country since the ouster of longtime dictator Omar al-Bashir,
the country's information ministry and several government officials
Tensions between civilian officials and the generals who have
been ruling Sudan under an uneasy power-sharing deal have been
escalating for several weeks amid a spiraling economic crisis in
the strategic nation on the Horn of Africa.
The U.K. Ditched Coal and Left Itself With a New Set of
BLYTH, England-Coal from mines around this northeastern English
port town made the U.K. an industrial and imperial superpower in
the 19th century. In the 21st, the country has all but ditched the
By kicking its coal habit, the U.K. has charted a route for the
U.S. and other nations seeking to reduce carbon emissions. British
governments made it prohibitively expensive to burn coal while
prodding investors to plow tens of billions of dollars into
renewables, energy executives and financiers say.
Endemic Covid-19 Has Arrived in Portugal. This Is What It Looks
LISBON-In this soccer-crazed capital of a soccer-obsessed
nation, the stadiums are full again. Portugal, a country ravaged
earlier in the year by the Delta variant of the coronavirus, now
has the highest Covid-19 vaccination rate in Europe and offers a
glimpse of a country trying to come to grips with what is
increasingly looking like an endemic virus.
Tens of thousands of screaming soccer fans crammed into the
Estadio da Luz here Wednesday to watch hometown favorites Benfica
take on Bayern Munich. They amassed on the subway to the stadium,
at the entrance as officials patted them down and, after the game,
at food trucks where they downed sandwiches and beer as they tried
to forget the drubbing their team had just received.
Fed Prepares to Taper Stimulus Amid More Doubts on Inflation
Federal Reserve officials are set to wind down their $120
billion-a-month bond-purchase program in November, but questions
over how soon inflation pressures will fade are creating more
uneasiness inside the central bank.
Fed Chairman Jerome Powell and senior officials have played down
worries this year that a surge in prices during the uneven pandemic
recovery would lead to permanently higher inflation. The most
notable price increases have been tied to items most affected by
the shutdown and reopening of the economy, but there are signs that
inflation is coming from a broader set of products and
Energy-Stock Surge Leaves Climate-Focused Investors Behind
A surge in energy stocks is challenging climate-conscious money
managers who beat the market for years when the sector struggled
but are now missing out on Wall Street's hottest trade.
The S&P 500 energy sector has rebounded 54% this year,
outpacing the broad index's 21% climb and leading the second-best
performing group by about 16 percentage points. That would mark the
third-largest such gap between the top two sectors since 2000,
according to Dow Jones Market Data.
Economy Week Ahead: Central Banks, GDP, Consumer Spending
Gross domestic product data from the U.S. and eurozone this week
will show how sharply economic growth slowed in the third
Powell Says Supply-Side Constraints Have Worsened, Creating More
Federal Reserve Chairman Jerome Powell indicated he is now
somewhat more concerned about higher inflation and said that the
central bank would watch carefully for signs that households and
businesses were expecting sustained price pressures to
"Supply-side constraints have gotten worse," Mr. Powell said
Friday at a virtual conference. "The risks are clearly now to
longer and more-persistent bottlenecks, and thus to higher
Xi's 'Common Prosperity' in Theory and Practice
Investors had, over the past 30 years, grown so accustomed to
ignoring rhetoric about communism from nominally-communist China
that a leader firmly putting equality at the heart of his economic
agenda has caused more than a little heartburn. The Oct. 15 release
of a fuller transcript of President Xi Jinping's mid-August remarks
on "common prosperity" therefore piqued considerable interest.
The publication in the party's theoretical journal, "Seeking
Truth," appears partly aimed at reassuring investors and
entrepreneurs spooked by novel language about "rationally
adjusting" excessive incomes in the original mid-August readout of
Mr. Xi's speech, which came at the height of Beijing's campaign to
rein in its internet giants.
Bitcoin ETF's Success Could Come at Fundholders' Expense
There are signs that the bitcoin futures market isn't big enough
for a planned wave of crypto exchange-traded funds.
Since launching Tuesday, the ProShares Bitcoin Strategy ETF has
amassed $1.2 billion in investor assets, the quickest
billion-dollar fundraising on record.
U.S. Covid-19 Battle Turns a Corner as Borders Open to Foreign
When U.S. borders open to foreign travelers on Nov. 8, the
country will have lifted one of the longest-standing restrictions
imposed 19 months ago at the start of the pandemic, signaling a new
phase of guarded optimism in the nation's battle with Covid-19.
With the Delta variant surge easing and vaccinations opening to
more age groups, many places are dropping mask mandates or other
restrictions on vaccinated people. The pullback represents a bet
that the most recent surge could be the last.
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(END) Dow Jones Newswires
October 25, 2021 06:28 ET (10:28 GMT)
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