MARKET WRAPS

Stocks:

European stocks continued a winning run ahead of a bumper day of U.S. earnings from some of America's largest corporations, including major tech names.

Tech behemoths Microsoft, Twitter and Google parent Alphabet are set to report earnings after markets close, part of a major week for an earnings season that has so far beaten investors' expectations and helped lift indexes out of a September slump.

Investors have been buoyed by strong figures from major banks, consumer companies and manufacturers. Meanwhile, jitters about the labor market and inflation have somewhat given way to optimism about a recovering economy.

"Covid numbers have crested, the economic data has been pretty good, and the early read on third quarter earnings is positive," said David Donabedian, chief investment officer at CIBC Private Wealth. "The bottom line is this is still a buy the dips market."

Tech firms are likely to remain attractive to investors, and their earnings should remain strong, despite the trend of fewer people working from home, and the risk of increasing regulation, said Mr. Donabedian.

"They are battleships-they just continue to post very strong revenue and earnings growth," he said.

Shares on the move:

Shares in Reckitt Benckiser rise 5% after the consumer-goods group raised its full-year revenue guidance. The third-quarter update was positive, with the company increasing sales forecasts and maintaining margin guidance despite inflationary pressures and supply-chain issues, AJ Bell said.

It also has benefited from the sale of its troubled Chinese infant formula business and wider operational efficiencies.

"Health and hygiene sales are also proving stickier than expected as it becomes clear we're going to be living with the virus for longer than some anticipated when successful vaccines were first developed," Bell analyst Russ Mould said.

Data in focus:

Sentiment in the German export industry has taken a significant hit, the Ifo Institute said. In October, the Ifo export expectations index fell to 13.0 points from 20.5 points in September. This is its lowest value since February 2021, Ifo said.

"Supply problems in intermediate products are now having an impact on manufacturing exports," Ifo President Clemens Fuest said. In the electrical and electronics sector, export expectations have softened but remain at a high level, Ifo said.

However, the mood is bleaker in the chemical and the automotive industries. In the food and furniture industries, exports are expected to remain constant, Ifo said. The textile and leather industries are now preparing for declining international sales, the report said.

U.S. Markets:

Stock futures gained as investors await earnings from Microsoft, Twitter and Alphabet.

Facebook, which was among the first of the major tech firms to report third-quarter earnings, said late Monday that changes to Apple's privacy rules had hit sales growth. The social-networking company saw its shares rise 1.7% ahead of the opening bell, as the hit wasn't as large as some analysts had been expecting.

Blue chip firms set to post earnings ahead of Tuesday's market open include United Parcel Service, General Electric, 3M, Raytheon Technologies and Lockhead Martin. Robinhood Markets and Visa are set to report after markets close.

Data on new home sales and consumer confidence are due at 10 a.m. ET, offering investors additional insight into the state of the economy. Home sales are forecast to pick up in September, while consumer confidence is expected to have weakened in October.

Forex:

The U.S. core personal consumption expenditures price index on Friday will be more important for the dollar's direction than third-quarter U.S. economic growth data on Thursday, BK Asset Management said.

The core PCE index, which is the Federal Reserve's preferred inflation measure, is seen hitting new highs and could drive interest rate rise expectations and the dollar higher, Kathy Lien, managing director of forex strategy at BK Asset Management, said.

"So even if GDP growth eases like economists expect because of softer retail sales and trade in the third quarter, taper expectations will remain intact if inflation is hot."

The euro looks set to continue trading around its current level or below ahead of the European Central Bank's policy decision on Thursday, Commerzbank said.

"As it stands there are likely to be just a few courageous EUR bulls in the run-up to the ECB meeting on Thursday," Commerzbank currency analyst Thu Lan Nguyen said.

"Even though no monetary policy decisions are expected for Thursday, the financial markets will nonetheless keep a close eye on the meeting and on the ECB council's view of the current high rates of inflation."

Positive market sentiment and the prospect of the Bank of England tightening monetary policy are lifting sterling, particularly against the euro, ActivTrades said.

Risk appetite is boosted by positive earnings, which tends to support sterling, while the market seems "increasingly convinced" that it's only a matter of time before the BOE raises rates, ActivTrades analyst Ricardo Evangelista said.

Bonds:

In the past six weeks, the 10-year U.S. Treasury yield has increased by close to 40 basis points, while the two-year yield has hit its highest level since the start of the pandemic, but these moves haven't affected expectations for real yields, said Morgan Stanley Wealth Management.

In 2013, the last time the Fed began to normalize policy, real rates didn't lift off negative lows until balance-sheet growth bottomed. "With balance sheet growth still strong and real rates deeply negative, a revaluation may be ahead for long-duration assets," it said.

ECB President Christine Lagarde is likely to face questions about future asset purchases at her press conference on Thursday, following a significant tightening of financial conditions in bond markets over recent weeks, said Daiwa Capital markets.

Lagarde is likely to deflect questions on such issues as they are unlikely to be discussed until the December meeting, Daiwa said.

Should the Governing Council be concerned about the recent jump in yields, Lagarde may flag the possibility of an accelerated pace of net purchases if the bond market selloff continues, Daiwa said.

The key task Christine Lagarde faces at the October policy meeting is "to calm market concerns about inflation and the ECB falling behind the curve," said Martin Wolburg, senior economist at Generali Investments.

Lagarde will have to walk a fine line in order to keep inflation expectations in check without being forced into outright policy actions by markets, the economist added.

Generali Investments expects recent remarks by Lagarde, including that the inflation spike is transitory and that the ECB continues to monitor the risk to the inflation outlook carefully "will also find their way into the October introductory statement, thereby stepping up the wording compared to the September meeting," Wolburg said.

J.P.Morgan sees stark inconsistency in monetary policy expectations priced in euro rates and money markets versus intra-eurozone spreads, it said, believing that spreads are reading the European Central Bank correctly.

"The euro money markets are now pricing a full 10 basis point hike from the European Central Bank in late 2022, which based on the ECB's forward guidance would argue a tapering of QE purchases by mid-2022 with net purchases ending by late 2022 at latest," JPM's strategists Aditya Chordia and Elisabetta Ferrara said.

A tapering and complete end of net asset purchases in 2022 isn't a consensus view, "and if true should have put widening pressure on intra-eurozone spreads during the recent sell-off, whereas intra-EMU spreads have moved broadly sideways over the period," they added.

Commodities:

Oil prices pared some of their gentle early-week gains that came amid growing concerns over declining inventories at the key delivery hub at Cushing, Oklahoma, according to ING's Warren Patterson.

Balancing those supply concerns are reports that Iran and the European Union will meet to discuss the prospect of reviving the Iran nuclear deal. That would ultimately lead to the U.S. lifting sanctions on Iranian oil exports and increasing global supply by around 1.3 million barrels a day by the end of next year, Patterson said.

Copper prices weakened as LME stocks rise, easing concerns about an increasingly tight market. On-warrant stockpiles in LME warehouses climbed for the fourth day, after hitting their lowest level since 1998 earlier this month. The inventory build was helping to ease concerns that strong demand for the metal and supply challenges were causing stocks to dwindle.

Aluminum fell due to declining thermal coal prices. The light-weight metal hit its highest level since 2008 earlier this month as input energy costs soared. China has said it is looking to take measures to tamp down high coal prices, which pushed the fuel's price down, bringing aluminum with it.

EMEA HEADLINES

UBS Third-Quarter Earnings Driven Higher by Fees From Wealthy Clients

UBS Group AG said fees from wealthy clients soared in the third quarter and its investment bank also reaped more revenue.

The Swiss bank said its third-quarter net profit rose 9% to $2.28 billion from $2.09 billion a year earlier. Analysts expected a net profit of about $1.6 billion. UBS said client activity was unusually high in the quarter and it expects it to slow down in the final three months of the year.

Novartis 3Q Earnings, Sales Grow; Announces Strategic Review of Generics Division

Novartis AG said Tuesday that earnings and sales grew on-year in the third quarter and announced a strategic review of its generics division Sandoz, which could include separation of the business.

The Swiss pharma major posted net profit of $2.76 billion for the quarter, up from $1.93 billion the year prior, on sales which grew to $13.03 billion from $12.26 billion in the third quarter of 2020.

Reckitt Benckiser 3Q Like-for-like Revenue Rose, Raises 2021 Guidance

Reckitt Benckiser Group PLC said Tuesday that its third-quarter revenue rose on a like-for-like basis but slipped on a reported basis, and raised its full-year revenue guidance.

The consumer-goods company, which houses Dettol, Harpic and Durex among its brands, said quarterly revenue fell 6.8% on year on a reported basis to 3.28 billion pounds ($4.52 billion). Like-for-like revenue growth was 3.3%, Reckitt said.

Orange Backs 2021 Targets After Slight Decrease in 3Q Revenue

Orange backed its 2021 guidance after revenue decreased in its third quarter on the back of a decline in co-financing received from other operators on its fiber network in France.

The French telecommunications company said revenue stood at 10.51 billion euros ($12.20 billion), down 0.7% on a reported basis and 0.4% on a comparable basis.

Thales Backs 2021 Targets After 3Q Sales Edged Down, Order Intake Rose

Thales SA backed its 2021 targets on Tuesday after reporting slightly lower sales and higher order intake in its third quarter.

The French aerospace-and-defense company posted sales of 3.56 billion euros ($4.15 billion) in the period compared with EUR3.58 billion the prior year. Organically, sales fell 1.4% due to a "high basis of comparison," especially at its defense-and-security division, it said. Last year, Thales's activities rebounded in its third quarter after being affected during its second quarter by the effects of the coronavirus pandemic and related lockdowns which limited access to its sites and therefore hit production.

Swedish FSA Drops Swedbank Market Abuse Probe

Swedbank AB said Tuesday that the Swedish Financial Supervisory Authority has dropped its investigation into breaches of European Union market abuse regulations at the bank.

The Swedish FSA opened an investigation in September 2020 into suspected breaches of articles 17 and 18 in the European Union's regulation on market abuse, but it has now closed the investigation without charges.

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.

Fund Manager Roundup: Market Pricing of ECB Rate Rise Is Too Ambitious, Says Santander AM

Bond markets' pricing of a eurozone interest-rate rise before the end of 2022 is too optimistic as inflationary pressures should ease, Klaus Schruefer, chief market strategist at Santander Asset Management Germany, tells Dow Jones Newswires in an interview. The 10-year German Bund yield could rise to 0% in coming weeks, while 2022 eurozone GDP growth is expected to be faster than that of the U.S. and this may help the euro, he says. The following is a selection of his comments. Santander AM had assets under management of EUR193 billion at the end of June 2021.

Market Pricing of ECB Rate Rise in 2022 Is Too Early, Says Santander AM

GLOBAL NEWS

Banks' Debt Sales Are Driving the Corporate Bond Market

U.S. banks are overrun with cash. So they are loading up on debt.

The six largest U.S. lenders have issued some $314 billion of bonds so far this year, already the most for any year since 2008, according to Dealogic.

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.

U.S. Treasury Creates New Post Focused on Racial Equity

WASHINGTON-The Treasury Department said Monday it had created a new position to support the Biden administration's efforts to promote economic opportunities for communities of color as the nation recovers from the coronavirus pandemic.

Janis Bowdler, who most recently worked as president of the JPMorgan Chase & Co. Foundation, will become the department's first counselor for racial equity, the Treasury said in a statement. Ms. Bowdler will be tasked with coordinating "efforts to advance racial equity including engaging with diverse communities throughout the country and to identify and mitigate barriers to accessing benefits and opportunities with the department," the Treasury said.

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.

Write to sarka.halas@wsj.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

October 26, 2021 06:29 ET (10:29 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.