MARKET WRAPS

Watch For:

Germany GfK consumer climate survey; Monetary developments in the euro area; U.K. Chancellor Rishi Sunak's Autumn Budget and Spending Review; updates from Iberdrola, Banco Santander, Deutsche Bank, Puma, BASF, Sodexo, Telecom Italia, Unicredit, Vivendi, L'Oreal, GlaxoSmithKline. Electrolux, Equinor, Fresnillo, Heineken.

Opening Call:

European stocks could open lower, tracking most of Asian markets. Yen strengthens, while the dollar is lower in early Asia trade. Portuguese budget vote could weigh on government bonds. Oil edges lower and metals fall.

Equities:

European stocks are set to pull back at the open Wednesday after S&P 500 and Dow Jones Industrial Average cruised to another pair of closing records Tuesday after solid earnings and upbeat consumer data gave investors a fresh dose of economic optimism.

Earnings season so far has beaten investors' expectations and helped lift stocks out of a September slump.

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

Consumer confidence also rose last month, halting a three-month decline, according to the Conference Board. The latest home-sales figures from the Commerce Department highlighted an increase in purchases across the country, topping analysts' projections.

"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."

Now investors are turning their attention to the tech industry. Microsoft, Twitter, Google parent Alphabet and Robinhood Markets all reported results after markets closed. Microsoft and Twitter shares edged higher in after-hours trading, while Alphabet and Robinhood slipped.

European budget retailers can still cash in on rising prices despite cost hikes, said J.P. Morgan Cazenove, upgrading its recommendation on B&M European Value Retail to over-weight from neutral.

The overall number of non-food discount retail stores across Europe could double by 2029 and JPM expects discounters that it covers to increase revenue in double digits on a compound annual basis until 2023.

"While the market is concerned about the ability of value retailers to pass on higher fresh and raw materials/product cost to customers, we believe that--short-term gross-margin pressure aside--most value retailers under our coverage could ultimately benefit from a downtrading to value in times of consumer inflationary pressure," JPM analysts said.

Forex:

JPY strengthens against most G-10 and Asian currencies, as concerns over Chinese property developers' debt woes support the safe-haven allure of the yen. Chinese authorities have reportedly told China Evergrande Group's billionaire boss Hui Ka Yan to use his personal wealth to pay off the company's massive debt, Phillip Securities Research said.

This demand comes as the property giant's woes have spread to other developers, souring sentiment in China's real estate market, the brokerage said.

The WSJ Dollar Index edged lower in early Asia trade. "The dollar's been a bit of a mixed bag," Silicon Valley Bank senior FX trader Minh Trang told WSJ. He said focus this week has been on earnings, with tech earnings creating optimism and "you're seeing more of a risk-on sentiment."

But there hasn't been much economic news or dollar movement. "Third-quarter GDP is coming up, and the expectation there is that there will be a slowdown in economic growth from 2Q," but that's baked into expectations, he said.

The European Central Bank is likely to lean against expectations for interest-rate rises at Thursday's policy meeting, sending the euro lower, Evercore ISI said. The market has "run ahead of itself" by pulling forward its expectations for the first rate rise to early 2023 with the possibility of a move in 2022, Evercore vice chairman Krishna Guha said.

"And, with some investors tactically positioned for an ECB pivot hawkish, we expect the meeting to come across dovish with rate hikes pushed back a bit and the euro lower."

The current low cost of options that protect against big swings in the euro versus sterling--demonstrated by low levels of implied volatility--presents an attractive opportunity to bet on large moves, said Macro Hive chief executive Bilal Hafeez.

EUR/GBP could move sharply in either direction as there's speculation the Bank of England could raise interest rates before year-end. The eurozone economy remains weak but at the same time U.K. growth is struggling, which "complicates the picture," he said.

Macro Hive recommends buying a three-month EUR/GBP straddle, purchasing both a put and a call option at 0.85. This option would make a profit if the pair rises above 0.8704 or falls below 0.8296, he said. Puts bet on a price falling and calls expect it to rise.

The Turkish lira recovered after President Recep Tayyip Erdogan backed down from his threat to expel 10 Western ambassadors but that is only likely to provide the currency temporary relief, BDSwiss analyst Marshall Gittler said.

"One suspects that it's only a matter of time before the next crisis occurs and USD/TRY breaks the record [highs] set on Monday," he said. Erdogan said at the weekend that he had ordered 10 Western ambassadors to be declared persona non grata for seeking the release of jailed philanthropist Osman Kaval but he later backpedalled by saying the envoys could remain in Turkey.

Bonds:

Goldman Sachs forecasts year-on-year core PCE inflation of 4.3% at year-end, 3.0% in June 2022, and 2.15% in December 2022, compared to previous expectation of 4.25%, 2.7% and 2.0%, respectively.

"This slower resolution of supply constraints means that year-on-year inflation will be higher in the immediate aftermath of tapering than we had previously expected," GS said. "This higher-for-longer path increases the risk of an earlier hike in 2022."

Nevertheless, Goldman Sachs is already seeing signs that the bottlenecks are easing and notes that Delta-driven lockdowns in key manufacturing countries are loosening up which should improve automotive chip supply and US vehicle production in 4Q.

Wednesday's vote in Portugal on the 2022 budget is a risk event for Portuguese bonds, said Citi's rates strategist Aman Bansal. As a result the 10-year Portuguese-German government-bond yield spread looks to be stuck above 50 basis points, he said.

Portugal's Prime Minister Antonio Costa's minority government needs a simple majority to pass his budget. Without this, the President will dissolve parliament and call a snap election two years ahead of time, Bansal said.

Citi sees the risk of a snap election as relatively low, however. "We see more likely that Costa acquiesces to some of left wing demands, saving the government," Bansal said, adding that this would result in a higher deficit target for 2022.

U.K. government bonds are unlikely to react much to economic data releases before the Bank of England's next policy meeting on Nov. 4, said JPMorgan.

"Market sensitivity to data flow has declined substantially and will likely persist until we see the BoE delivery at the November meeting," analysts at the bank said.

Investors have tepidly bought back gilts after last week's selloff, driving yields lower, in reaction to comments by rate-setter Silvana Tenreyro Monday, suggesting the BOE should wait before raising interest rates as inflation pressure may ease.

Energy:

Oil declined in Asian trading, pulling back from overnight gains that were supported by expectations for global supplies to remain tight. Investors will likely keep a close watch on upcoming talks between Iran and the European Union, which could eventually help revive a Iran nuclear deal, ANZ said.

This comes ahead of a meeting of the OPEC+ alliance, where members will discuss whether to increase output by more than scheduled under the current supply agreement, the bank said.

Metals:

Gold inched lower in early Asian trade, as a positive earnings season in the U.S. helps to boost risk appetite across markets, ANZ said. The bank, however, expects U.S. inflation concerns will become more persistent, which could in turn provide some support for gold.

Copper was lower in early Asian trade. The price of the metal is likely weighed by rising fears of a debt crisis affecting China's property sector after developer Modern Land missed a payment on a dollar bond, ANZ said. The bank also noted that Beijing has signaled it isn't rushing to counteract the debt crisis with any stimulus.

Iron-ore prices were lower in early Asian trade, as the commodity gives up earlier gains. Huatai Futures points out that the recent upturn has been mainly driven by cheap prices, as well as higher transportation costs that limited supplies. But the brokerage reckons the commodity's prices will remain range-bound in the coming months, given likely weak demand from steelmakers, which have been facing production restrictions.

TODAY'S TOP HEADLINES

U.S. Consumer Confidence Rose as Delta Covid-19 Wave Eased

U.S. consumer confidence increased in October following three months of declines, as the wave of Covid-19 cases due to the Delta variant started to ease.

The consumer confidence index increased to 113.8 in October from a revised 109.8 in September, according to data from the Conference Board released Tuesday. The indicator came in above the 108.0 estimate from economists polled by The Wall Street Journal.

Home-Price Growth Holds at Record in August

Home-price growth held at a record high in August, as demand from home buyers remained robust despite skyrocketing prices.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 19.8% in the year that ended in August, unchanged from the prior month.

Tax Proposals Hit Headwinds as Democrats Try to Finalize Social-Spending Deal

WASHINGTON-An 11th-hour push by Democrats to fund their social-spending and climate bill faltered, with a proposed tax on billionaires' unrealized capital gains and revised bank-reporting requirements both running into opposition from party lawmakers.

Democrats have scrambled for days to find hundreds of billions of dollars of new revenue acceptable to Sen. Kyrsten Sinema (D., Ariz.), who is opposed to the increases in the top marginal rates on companies, capital gains and personal income that the party planned to rely on to finance the bill. With Republicans opposed to the package, Democrats need unanimous support to pass the legislation in the 50-50 Senate and can afford to lose only a few votes in the House.

Chinese Industrial Companies' Profits Rebound in September

BEIJING--Chinese industrial companies' profits rebounded in September, ending a six-month slide in growth, official data showed Wednesday.

The growth was driven by the high-tech manufacturing industry, pharmaceutical enterprises and the steady recovery of profits in the consumer-goods manufacturing industry.

U.N. Finds Nations' Climate Plans Fall Short of Paris Accord

The world's emissions-reduction plans would allow far more global warming than targeted in the Paris climate accord, and some of the biggest emitters, including the U.S., aren't on track to hit their pollution targets, according to a report from the United Nations.

Tuesday's report adds urgency to the summit set to begin in a few days in Glasgow, Scotland, the first major climate meeting since more than 190 nations signed the Paris agreement in 2015. Countries are searching for ways to reach the agreement's goals, which call for them to ensure the rise in global temperatures by the end of the century is well under 2 degrees Celsius compared with the preindustrial era, and to strive to limit warming to 1.5 degrees.

Inflation Could Mean Value Stocks' Time to Shine

Bitcoin, gold, oil, real estate-many assets are finding themselves on investors' radar screens as concerns about inflation grow. The best refuge might be one that has been out of fashion for a while, though: boring old value stocks.

Value investing had a brief moment of superior performance early this year, only to sink back into second-class status as stocks like Tesla with triple-digit earnings multiples-and many with no earnings at all-surged anew. A broad basket of cheap stocks represented by the Russell 3000 Value Index has appreciated by a respectable 80% in the past five years. Russell's corresponding basket of growth stocks has done more than 100 percentage points better, however.

The Lowdown on the Third-Quarter Slowdown

Everybody thinks the U.S. economy slowed down in the third quarter. They don't agree on how much.

The Commerce Department will release its first read on third-quarter gross domestic product on Thursday. For what it is worth, the median estimate among economists polled by The Wall Street Journal is for a 2.8% annual growth rate. That compares with a 6.7% rate in the second quarter.

Swapping GameStop for ETFs, Retail Investors Ride Out Volatile Markets

Record numbers of individual investors flooded the markets during the Covid-19 pandemic. Almost two years in, they're still hanging around-though their strategy has changed.

The U.S. stock market is emerging from one of its choppiest stretches in the past year, a rapid pullback starting in September that sent the S&P 500 tumbling 5.2%, its steepest fall since October 2020.

Mucinex Owner Reckitt Sees Surge in Demand as Colds, Flu Return

Reckitt Benckiser Group PLC said demand for its cold and the flu products was picking up as social distancing eases, helping the owner of Mucinex medicine report stronger quarterly sales and raise its guidance for the year.

The U.K.-based consumer-goods giant said Tuesday that it had seen a "sharp improvement in cold and flu sales trends" in the third quarter. The resurgence comes after demand for Reckitt's cold and flu medicines like Mucinex and Strepsils was hit last year as Covid-19 restrictions closed schools and offices, suppressing seasonal illness.

Novartis Weighs Sale or Spinoff of Generic Drug Unit Sandoz

Novartis AG said it is considering the sale or spinoff of its generic drugs business Sandoz, a move that would focus the once-sprawling healthcare conglomerate solely on innovative prescription drugs.

Sandoz, like many generic drugmakers, has struggled with falling prices in the U.S. in recent years. Generic drugs are lower-cost versions of prescription medicines whose patents have expired. While their prices are usually far below those of the branded drugs that they imitate, increased competition has driven those prices even lower in recent years.

DraftKings Abandons $22 Billion Bid for Entain

DraftKings Inc. is dropping its roughly $22 billion bid for Entain PLC, turning away from an attempt to buy a major international player in the gambling industry.

DraftKings, based in Boston, said that the decision to step back from its cash-and-stock offer followed negotiations with Entain's leadership team. DraftKings first acknowledged making a bid for the company in September. Earlier this month it agreed to extend the talks, with a deadline of Nov. 16 under U.K. takeover law to formalize its bid or walk away.

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

UBS Group AG posted its highest quarterly net profit since 2015 and announced plans for a digital investing tool that it hopes will expand its wealth-management business beyond the very rich.

Switzerland's largest bank reported higher fees from wealthy clients and from corporate deal making. Its $2.3 billion in profit easily topped analyst profit estimates of around $1.6 billion, though the bank warned client activity would likely slow in the final three months of the year.

Terror Groups in Afghanistan Could Be Ready to Attack West in 6 Months, U.S. Says

The Islamic State in Afghanistan could be able to launch attacks on the West and its allies within as soon as six months, and al Qaeda could do so within two years, a top Pentagon official told lawmakers on Tuesday.

The testimony by Colin Kahl, undersecretary of defense for policy, before the Senate Armed Services Committee, diverged from an earlier Biden administration view that al Qaeda had been "degraded" in Afghanistan.

Google Nearly Doubles Profit Behind Red-Hot Ad Market

Alphabet Inc.'s Google tallied its highest sales growth in more than a decade and nearly doubled its profit in the third quarter, as smaller businesses poured money into digital ads aimed at customers whose purchases have shifted online.

The strong results underscored how the pandemic has turbocharged the company's core advertising business. With retail foot traffic dwindling, marketers turned to Google to promote their products, delivering in a single year the kind of quarterly sales growth that the search giant typically records over a two-year span.

Microsoft Earnings Jump as Cloud Services Thrive

Microsoft Corp. continued to benefit from the global shift toward remote work as its cloud business boosted its revenue last quarter.

On Tuesday it reported revenue of $45.3 billion for the three months through Sept. 30, up 22% from the year-earlier period. Net income rose 48% to $20.5 billion. The results exceeded analyst expectations of $44 billion in sales and $15.7 billion in profit, according to analysts surveyed by FactSet.

Twitter Posts Strong Ad Revenue Growth Despite Apple Privacy Updates

Twitter Inc. largely dodged turmoil in the digital advertising market from new Apple Inc. app privacy policies and supply-chain disruptions as it reported a 37% jump in third-quarter revenue.

The company on Tuesday posted $1.28 billion in revenue, largely in line with Wall Street expectations, with ad sales rising 41% from the year-ago period.

Write to sarka.halas@wsj.com

Expected Major Events for Wednesday

06:00/GER: Nov GfK consumer climate survey

06:00/DEN: Sep Retail sales index

06:00/GER: Sep Foreign trade price indices

06:45/FRA: Sep PPI

06:45/FRA: Oct Consumer confidence survey

07:00/TUR: Sep Foreign Trade

07:30/SWE: Sep Foreign trade

08:00/EU: Sep Monetary developments in the euro area (M3)

08:00/ICE: Sep PPI

08:00/ITA: Sep Foreign Trade non-EU

08:00/AUT: Oct Austria Manufacturing PMI

08:00/ICE: Oct CPI

08:30/UK: Sep Capital issuance

09:00/CYP: Aug Industrial Production Index

10:00/FRA: 3Q Claimant count and job advertisements collected by Pole emploi

15:59/UKR: Sep Industrial Production

23:01/UK: Sep UK monthly automotive manufacturing figures

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

(END) Dow Jones Newswires

October 27, 2021 00:23 ET (04:23 GMT)

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