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 prior month.

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 said.

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 said.

"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 said.

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 fourth quarter.

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.

U.S. Markets:

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 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 profits.

"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 CMC Markets.

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 weekend.

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 allocations.

"We think it makes sense to seek to maximize the opportunity in traditional fixed income strategies with flexible mandates," he said.

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 TD Securities.

"Thus President Lagarde is likely to use her podium to push back verbally on yields to the best of her ability," TD Securities said.

The question remains how much emphasis the ECB will put on pushing back against market interest-rate expectations, however, it said.


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 Martinsen.

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+ production."

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 also contributing.

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 rising.

"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 Jumps

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 bad loans.

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 last year.


Talks Collapse Over Sale of Troubled Italian Bank Monte dei Paschi

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 Sunday.

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 in 2017.


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 Listing

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 U.S.

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 electric-car batteries.

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 Bank

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 companies.


SSAB 3Q Net Profit Beat, Cautions on Auto Demand Amid Semiconductor Shortage

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 Microsoft

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 said Monday.

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 Challenges

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 fuel.

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 Like.

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 services.


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 quarter.


Powell Says Supply-Side Constraints Have Worsened, Creating More Inflation Risk

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 continue.

"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 inflation."


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 Travelers

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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