MARKET WRAPS

Watch For:

ECB Bank Lending Survey; updates from Orange, UBS, Novartis, Atos, Kering, Thales, Faurecia, Whitbread, Bunzl, Reckitt Benckiser.

Opening Call:

Stocks could extend gains after U.S. stocks closed at record highs. Dollar strengthened against the yen and weakened against the euro. The yen weakened against most G-10 and Asia currencies. Oil rose and gold declined.

Equities:

European stocks are set to continue their march upward after the S&P 500 and Dow Jones Industrial Average closed at record highs.

Strong earnings from U.S. banks, consumer companies and manufacturers have soothed investors' concerns about higher inflation and labor shortages. Now all eyes are set on technology stocks, which have a weighting of nearly 30% in the S&P 500.

Facebook shares jumped in after-hours trading in the U.S. after it reported earnings on Monday afternoon. Microsoft, Twitter and Alphabet, Google's parent company, are scheduled to report earnings Tuesday. Apple and Amazon.com are expected to report later in the week.

"Without a doubt, tech is the most important sector to the S&P overall," said Eric Mintz, portfolio co-manager at Eagle Asset Management. "I broadly expect earnings from the tech sector to be robust."

Michael Hewson, chief markets analyst at CMC Markets, said that one notable takeaway from earnings reports 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."

A key question for investors 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, and officials could start scaling back pandemic-era stimulus at the November meeting.

"It's very normal at this stage in the game, when the Fed starts taking away the punch bowl, for dividend growth stocks to outperform," said Sarah Henry, managing director and portfolio manager at Logan Capital Management. "It seems like the complexion of the market has changed and the tone that investors are valuing."

Meanwhile, rising energy prices and supply disruptions in various product and labor markets are causing lower economic growth and higher inflation expectations, which have risen to multiyear highs in the eurozone, UBS said.

But the pandemic has shown that markets can look past challenging periods-provided they are not persistent, economists at UBS said. "Currently, we see the challenges in energy, product, and labor markets as transitory rather than the makings of a new stagflationary economic regime," UBS' Global Wealth Management chief investment office Mark Haefele said.

With current issues still appearing more transitory than structural, equity markets will continue to move higher, Haefele said.

Stocks to watch: J.P. Morgan was disappointed by Rio Tinto's recent investor day, especially the outlook for its Australian iron-ore business, with the miner having backed away from a 360-million-ton target in the medium term.

"Our previous view was that Rio's iron-ore division was a short-term turnaround story," JPM said. "We no longer view it this way, with our medium-term estimates now reflective of 2H21 performance."

The bank cut its target on the stock to A$113/share from A$143/share, although it keeps an overweight rating because of Rio's relatively low price-to-NPV, 10% yield and net cash balance. Rio was down 0.8% in Sydney.

Forex:

The U.S. dollar strengthened against the yen and was flat against the euro in early Asia trading. The WSJ Dollar Index rose slightly. A rates selloff has triggered enyasu, or a weak yen, Goldman Sachs said.

The bank said relative to G10 peers, the yen is more sensitive to changes in longer-dated rates, and this "has been especially true since 2016, when the BoJ implemented its YCC framework, which caps nominal yields and thereby acts as an amplifier when rates in the rest of the world are on the move.

In this context, the recent sharp selloff in the yen has been right in line with shifts in other asset classes."

Given the relatively more aggressive policy expectations now priced across the G10, "we see a higher bar for the USD/JPY rally to continue much further."

JPY weakened against most G-10 and Asian currencies as risk appetite increases, underpinned by news of more countries in the region reopening their economies to international travel. Thailand joined the growing list of those to reopen, allowing fully vaccinated visitors from 46 countries to forgo quarantine, starting Nov. 1, according to reports.

Bitcoin's price could rise as the amount of the cryptocurrency on exchanges has reached the lowest in more than four years, digital asset broker GlobalBlock said.

"On chain analysis is more bullish than ever for bitcoin, as the balance on exchanges is the lowest it has been since August 2017, a phenomenon that could lead to a higher bitcoin price as less of the asset is available for trading and locked away, most probably in expectation of a continued rally," GlobalBlock sales trader Marcus Sotiriou said.

The Norwegian economy's robust recovery and a jump in oil and gas prices have boosted the krone recently but the currency is unlikely to rise much further, UBS Global Wealth Management said.

"While the short-term outlook remains unclear, we think gas prices will eventually level off in 2022, removing some support for the krone," UBS analysts said.

The global outlook will also become "less supportive" of the krone next year as economic growth eases, they said. The Norges Bank is likely to raise interest rates further but this is well anticipated by investors, they said.

UBS expects EUR/NOK to trade at 9.70 by December 2022, little changed from its current level.

Bonds:

Investors and policymakers will have to deal with a macro environment that is "radically different" from that seen in the decade prior to the pandemic, Joachim Fels, global economic advisor at Pimco, said in a webinar.

"What lies ahead in the next five years or so is a much more uncertain, more volatile and more divergent growth and inflation environment," he said.

The upcoming years will be different from the pre-pandemic era of low but relatively stable growth, below-target inflation and very subdued volatility in financial markets, he said. Asset returns are likely to be lower and volatile, he added.

Germany is unlikely to give up its fiscal discipline under its new government but it will likely pursue a less dogmatic fiscal stance, Konstantin Veit, portfolio manager at Pimco, said in a webinar.

"While we don't believe that Germany will turn from fiscally conservative to fiscally profligate, and while we don't believe Germany will run current account deficits in the end of our secular [three to five years] horizon, we believe the new government will look to pursue a somewhat less dogmatic fiscal stance," he said.

A new government could be in place in Germany as early as in December, likely to be led by the Social Democratic Party, with the Greens and the pro-business Free Democratic Party being part of the coalition.

Fixed-income market pricing of interest rate rises in the eurozone at the end of 2022 "represents a clear contradiction with the European Central Bank's new forward guidance," the conditions of which will not have been met at this point," said Gergely Majoros, member of Carmignac's investment committee.

This implies that at the coming meeting on Thursday, "the ECB needs to defend the credibility of its own commitments," he said. Carmignac finds its fair to assume that the ECB will try to prevent an abrupt deterioration of financial conditions in the eurozone in the coming months, including after the termination of the Pandemic Emergency Purchase Programme in March 2022, he said.

Energy:

Oil rose in Asian trading amid reports that the European Union will hold discussions with Iran later this week, ANZ said. This is a prelude to broader talks in Vienna on how to revive the 2015 nuclear deal.

Meanwhile, OPEC also appears to be concerned about how rising Covid-19 cases may affect oil demand, leading Saudi Arabia to suggest that producers shouldn't take the rise in prices for granted as demand recovery still looks fragile, ANZ said.

Metals:

Gold declined in early Asian trade. IG said the precious metal has scope to rise, however, noting catalysts such as by expectations for more persistent inflation in the U.S., as well as the downplaying of the relationship between tapering and rate hikes ahead of the Federal Open Market Committee meeting next week.

The brokerage also notes that gold has now gone past the key $1,800 level, and this may turn out to be a support level to watch.

Copper was flat in early trade, with expectations of increased supply possibly offsetting inventory shortages. Copper-shortage concerns have eased despite a rapid fall in warehouse stockpiles, Commonwealth Bank of Australia said.

Global supply from mines is likely to rise 2.1% in 2021 and 3.9% in 2022, compared with a 0.3% gain in 2020, it says. However, CBA reckons that "it's worth considering that new mine supply may take longer than currently expected to hit the market."

Chinese iron ore rose as concerns over the Chinese property sector stemming from China Evergrande seem to be easing after it staved off default last week, ANZ said.

"This saw some support return for iron ore, with futures inching higher on the news," the bank said. However, ANZ said demand is still weak amid lower Chinese steel production due to the country's output cuts.

TODAY'S TOP HEADLINES

Cryptocurrency Company Snared in SEC Dragnet Sues Regulator

A cryptocurrency developer who was handed two subpoenas as he walked inside a hotel last month won't comply with the demands-and is instead suing the federal regulator that issued them.

Do Kwon, a South Korean citizen and resident, says the move by the Securities and Exchange Commission violated the agency's rules and was designed either to embarrass him or to stir up media interest in its crackdown on the cryptocurrency market.

Democrats Negotiate Tax, Healthcare Provisions as Biden Seeks Deal This Week

WASHINGTON-Democrats are sprinting to wrap up negotiations over their social-spending and climate bill, hoping by this weekend to resolve disagreements on issues including tax policy and healthcare.

Senate Majority Leader Chuck Schumer (D., N.Y.) said Monday there were three to four open issues. Lawmakers and aides said major policy areas, including the tax increases to pay for the package, Medicare and Medicaid provisions and a paid leave program, remain unresolved. The bill, initially drafted at $3.5 trillion, is now expected to cost between $1.5 trillion and $2 trillion.

Inflation Pinches Restaurants, but Customers Seem Willing to Split the Check

Inflation is making casual-dining shareholders sick to their stomachs. Relief is likely on the way.

Brinker International, owner of Chili's, said last Tuesday that it earned 34 cents a share on an adjusted basis in its fiscal first quarter, which ended in September-far below Wall Street analysts' estimate of 68 cents a share.

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.

Buyout Firms Set Record for Loading Companies With Debt to Pay Themselves

Private-equity firms are taking advantage of a frothy credit market to pay themselves record sums with borrowed money, a controversial practice that critics say benefits buyout-firm executives but can harm portfolio companies.

Companies backed by U.S. private-equity firms have taken on $58.5 billion in dividend-recapitalization debt this year through Oct. 20, S&P Global Market Intelligence's LCD unit said in response to a Wall Street Journal data request. That is more than levels of such debt for 2019 and 2020 combined. The previous full-year record of $51.1 billion was set in 2013.

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.

Facebook Whistleblower Frances Haugen Calls for New Tech Laws in Europe

LONDON-Facebook Inc. whistleblower Frances Haugen encouraged U.K. lawmakers to pass legislation to rein in social-media platforms, saying that Facebook has trouble curbing misinformation and hate speech in many languages and dialects, including British English.

Ms. Haugen's comments to a U.K. parliamentary committee Monday give new impetus to the biggest potential expansion in global tech regulation in years, with Britain currently considering legislation to curb harmful online content. The former Facebook employee presented her conclusions from a set of internal Facebook documents-first disclosed in The Wall Street Journal-that she says illustrate the social-media company's struggles to balance the safety of its users with its own profit motive.

Afghan Refugees Can Be Sponsored by Private Citizens Under New Program

WASHINGTON-Private citizens will be allowed to sponsor Afghan families under a new program launched Monday by the Biden administration, as overwhelmed agencies have left thousands stuck on military bases in harsh conditions waiting to be resettled.

The Sponsor Circle Program will be run along with a nonprofit that was set up last month to help refugees settle in the U.S., filling the role of traditional resettlement agencies. The program will allow private citizens to group together to sponsor families and help them access housing and other necessities like food, clothing and education.

Russian Military Drills Near Afghan Border Deliver Warning to Extremists

HARB-MAIDON RANGE, Tajikistan-Russia held a series of joint military exercises with its Central Asian neighbors near the border with Afghanistan last week, a reflection of the concern in Moscow that ethnic tension or terrorism could spill over from the country as extremists such as Islamic State challenge the Taliban's rule there.

The Russian-led Collective Security Treaty Organization, or CSTO, which also includes Belarus, Armenia, Kazakhstan, and Kyrgyzstan, conducted a weeklong series of exercises that ended Saturday on the Harb-Maidon training range, less than 20 miles north of Tajikistan's border with Afghanistan.

Analysis: U.K.'s Gilt Supply Set to Fall as Government Reins in Borrowing

U.K. public borrowing is set to continue to fall in the fiscal year 2021/22 amid expectations that Treasury chief Rishi Sunak will set out a tighter fiscal policy when he presents the latest Budget statement to parliament on Wednesday.

Mr. Sunak is expected to scale back the emergency stimulus due to the Covid-19 pandemic in an attempt to bring the public finances to a more sustainable path.

Facebook Posts Slower Sales Growth With Apple Privacy Policy

Facebook Inc. blamed Apple Inc.'s privacy rules for posting slower sales growth and warned of further uncertainty for the social-media giant's crucial advertising business.

Facebook's ad sales, its primary revenue source, saw slower growth in the first full quarter since Apple in April started requiring apps to ask users whether they want to be tracked. That change has made it harder for advertisers to target their ads at audiences and get information regarding how well their ads performed.

Bankruptcy Judge Declines to Pause Talc Litigation Against Johnson & Johnson

A bankruptcy judge refused an initial bid to pause talc litigation against Johnson & Johnson, setting the stage for a November hearing that will likely scrutinize the corporate maneuvering the company undertook to try to settle thousands of personal-injury lawsuits through a subsidiary's chapter 11.

Judge J. Craig Whitley of the U.S. Bankruptcy Court in Charlotte, N.C., on Friday refused to extend to J&J a temporary restraining order that would have halted lawsuits against the consumer-goods giant during the two-week period before next month's hearing.

Jeff Bezos' Blue Origin Pursues Private Space Station

Jeff Bezos' space company said it would help to build a new space station, part of a growing bet by entrepreneurs and companies that many future orbital facilities will be privately owned and operated.

Blue Origin LLC said Monday it is working with a unit of Sierra Nevada Corp., Boeing Co. and others to create a station that is meant to become operational in its initial form in the latter half of this decade. The planned facility, called Orbital Reef, will aim to generate revenue from government agencies and private-sector customers including entertainment companies and manufacturers, executives said during a briefing.

Write to sarka.halas@wsj.com

Expected Major Events for Tuesday

05:00/FIN: Sep Labour force survey, incl unemployment

07:00/SPN: Sep PPI

07:30/SWE: Sep PPI

09:00/LUX: Aug Trade

10:00/UK: Oct CBI Distributive Trades Survey

23:01/UK: Oct REC JobsOutlook survey

23:01/UK: Oct Shop Price Index

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

October 26, 2021 00:19 ET (04:19 GMT)

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