MARKET WRAPS

Stocks:

European stocks fell after downbeat Asia trading and as investors await economic events later.

"A largely downbeat session overnight has seen indices throughout China, Japan and Hong Kong lose ground," IG analysts said. "That comes as worries over the Chinese housing system remain elevated following the missed bond payment by Modern Land.

Tensions between Washington and Beijing were also in focus after U.S. regulators banned China Telecom Corp. from operating in the U.S. The Federal Communications Commission gave China Telecom 60 days to leave the U.S. market. Regulators cited a potential national security threat from the company, such as the disruption of U.S. communications, amid rising tensions between the countries.

Shares on the move:

Deutsche Bank shares traded 5.3% lower after posting 3Q earnings in which above-expectations revenue was partly offset by higher-than-expected costs, UBS analysts said.

The market is too bearish on the German lender, UBS said. Deutsche Bank backed its target of improving its return on tangible equity--a key measure of profitability--to 8% next year, while consensus expects it at 5.3%, it said.

UBS finds the target ambitious, but expects the bank's RoTE at 6.1% next year and says consensus views are too conservative. "Importantly, DB also reiterated its ambition to begin EUR5 billion capital distributions to shareholders from 2022 onward--that's a key cornerstone of our investment case and a big delta to the consensus view," UBS said.

Data in focus:

U.K. Treasury chief Rishi Sunak is likely to present a better state of the public finances than initially forecast when he announces the autumn Budget in parliament later Wednesday, said UniCredit.

The better situation may not last, however, as it's largely due to one-off factors, reflecting an underspend on Covid-19 support measures, analysts at the bank said.

Economic growth has slowed materially, while rising inflation and a higher yield curve will add to debt-servicing costs, analysts at the bank said.

Bank of England rate-setters said they will have to act to tackle stubbornly high inflation, raising the risk of higher interest rates fairly soon. This would increase the cost to the Treasury of the BOE remunerating reserve balances at the bank rate, they said.

The German economy has lost a little of its willingness to hire, the Ifo Institute said. The Ifo employment barometer fell to 103.6 points in October from 104.3 points in September. Nevertheless, the labor market continues to recover, Ifo added.

In manufacturing, the employment barometer remained almost unchanged. Supply problems with raw materials and intermediate products aren't yet reflected in companies' employment policies, Ifo said.

Among service providers, the indicator fell but the hospitality industry is still looking for new staff, as are recruitment agencies, the German institute said.

In trade, businesses would like to strengthen their personnel planning. There is also still demand for new employees in construction, albeit less than in the previous month, Ifo said.

German import prices rose 17.7% on year in September, marking the highest increase since August 1981, Destatis said. Energy imports were 107.1% more expensive than in September 2020, the German statistics office said.

This increase was driven by a 170.6% rise in the price of natural gas and a 75.5% increase in the price of crude oil. Import prices, excluding crude oil and mineral-oil products, increased by 14.7%, Destatis said.

Export prices rose 8.1% in September compared with the previous year. Compared with the previous month, German import prices rose 1.3% in September and export prices increased 0.9%, Destatis said.

U.S. Markets:

Stocks were poised to trade around record highs as investors awaited results from more of the biggest U.S. companies.

Solid quarterly earnings from American corporations have quelled the investor concerns about supply-chain problems, inflation and Chinese economic growth that rattled markets at the start of fall. The S&P 500 is up 6.2% for October and on course for its biggest monthly advance since November.

"Investors got fairly gloomy in September, clearly against the backdrop of all sorts of macro concerns," said Paul O'Connor, head of the multiasset team at Janus Henderson Investors. "The broader story from results is that companies are managing these dynamics pretty well, and also managing expectations fairly well."

Money managers still have worries, ranging from the fate of President Biden's infrastructure and social-spending plans to the potential unwind of Federal Reserve stimulus measures that have goosed markets since early 2020. For now, though, many investors say they are sticking with stocks in the expectation of modest if bumpy returns through the end of the year.

Results from Coca-Cola, McDonald's and Kraft Heinz, expected before the opening bell, will offer clues about how companies are navigating shortages of workers and raw materials. Harley-Davidson, Boeing and General Motors will also report before the stock market begins to trade, while Ford Motor and eBay are on the block after markets close.

On the economic front, data on orders of durable goods are due to be released at 8:30 a.m. ET. Economists polled by FactSet expect orders to have fallen 1% in September from August, reflecting disruption to supply chains in the auto industry and other sectors.

Forex:

The dollar faces a hit from potentially weaker-than-expected third-quarter U.S. economic growth data on Thursday as the recovery is likely to have lost considerable momentum over the summer, Commerzbank said.

"If the market was to be disappointed it might postpone its expectation of an imminent [interest rate] lift-off, with the dollar being sold off short-term," Commerzbank currency analyst Antje Praefcke said.

With Federal Reserve officials entering the blackout period in the run-up to the November 2-3 policy meeting, the market is relying on economic data to confirm its interest rate expectations, she said.

The European Central Bank is likely to deliver a neutral message at Thursday's policy meeting that prompts the market to scale back its interest rate rise expectations and weakens the euro, ING said.

Expectations for the deposit rate to be raised by 10 basis points in late 2022 face a "reality check" as the ECB will avoid suggesting the debate over the withdrawal of stimulus is "leaning in any clear direction," ING analysts said.

That could dent the euro, but only marginally as the currency has showed little reaction to recent policy decisions, they said. EUR/USD could fall below 1.15 in November, versus 1.1596 currently, although seasonality trends in December may see it recover towards 1.1700 at year-end, they said.

Bonds:

Volatility looms for global bond markets due to the prospect of asset-purchase tapering at the next Federal Reserve meeting in early November, said Simon Lue-Fong, head of fixed income at Vontobel.

However, any rise in yields will likely prove a blip within a larger downward trend in yields that is driven by powerful structural forces such as digitalization and demographics, he said.

"All eyes are currently on the Fed but in the greater scheme of things tapering won't be the catalyst for a real change in direction of yields, " he said.

Credit markets would gain from investors taking profits in stocks, said Mizuho. Analysts at the bank see potential for profit-taking flows out of equities.

"Equities continue to perform well and the question once again becomes how far do indices need to rise to induce profit-taking in size," they said. If equities "are indeed vulnerable to investors taking profit, credit is likely the place to be."

However, if the lasting impression is that of a relatively positive third-quarter earnings season, investors may decide to stay invested in equities rather than increase fixed-income exposure, they said.

Stressing policy persistence by the ECB at its meeting Thursday "could prompt some reappraisal of market policy rate expectations," said Peter Goves, fixed income research analyst at MFS Investment Management.

Markets are pricing an almost 10 basis-point interest-rate rise by the ECB before the end of 2022. As ECB Governing Council members continue to stress how the rise in HICP inflation is likely to be transitory, MFS IM expects ECB President Christine Lagarde's message this week to likely contrast with market pricing.

U.K. borrowing costs fell further Wednesday ahead of the government's presentation of its spending plans at midday. Treasury chief Rishi Sunak is expected to rein in the hefty stimulus deployed during the pandemic to prop up the economy as he begins fiscal tightening. A revision to the gilt remit for the current fiscal year 2021-22 is expected to follow the budget announcement, with a downward revision widely anticipated.

"Market expectations for the reduction in the Gilt remit likely fall in the range of GBP25-40bn," analysts at Mizuho said, adding that the division of the amount is slightly weighted towards gilts of shorter maturities.

Commodities:

Oil prices were down after the American Petroleum Institute released data late Tuesday showing rises in U.S. crude oil, gasoline, and distillate fuel inventories.

Those figures come despite recent fears over falling supply--the crucial distribution hub of Cushing, Oklahoma continues to see falling inventory numbers, and Saudi Aramco on Tuesday raised concerns about the world's falling spare oil capacity.

Still, though, those remarks from Aramco are "at odds with what OPEC+ are forecasting for next year," noted ING's Warren Patterson, adding that the group expects strong non-OPEC supply growth in 2022 and ING's forecasts show a market in surplus in 2022.

Aluminum prices fell close to a two-month low as supply concerns ease. The metal has fallen over the past two weeks after hitting a 13-year high. Rising energy costs initially raised concerns that energy-intensive aluminum smelters could cut back on production. But China has been taking steps to curb rising coal prices, the latest of which is China's state planner asking coal-producing provinces to probe illegal storage sites and crack down on hoarding.

Prices for Chinese thermal coal, which powers much of the nation's aluminum smelters, have dropped over 9% this week as of Tuesday. Falling coal prices are easing concerns in the aluminum market.

EMEA HEADLINES

German Consumer Confidence Is Expected to Increase in November, Defying Inflation

Consumer sentiment in Germany is expected to strengthen in November, due to increasing propensity to consume and declining propensity to save, according to data from market-research group GfK released on Wednesday.

GfK's forward-looking consumer sentiment index forecasts confidence among households rising to 0.9 point in November from a revised figure of 0.4 point in October. Economists polled by The Wall Street Journal anticipated a drop, expecting sentiment to decline to minus 0.3 point.

Deutsche Bank Reports Higher Profit as Loan Charges Fall

Deutsche Bank AG said its third-quarter net profit rose as lower bad-loan charges helped offset a fall in investment banking revenue and additional costs for its overhaul.

Still, the German lender said it is on track to meet ambitious financial targets next year, a key test for Chief Executive Officer Christian Sewing, who in 2019 vowed to make the bank leaner and more profitable following years of broken promises from his predecessors.

Europe's Push to Loosen Russian Influence on Gas Prices Bites Back

For years, the European Union tried to loosen Russia's iron grip on its gas supplies by fostering a competitive import market. Those efforts have boomeranged this year as supplies run short, setting off an energy crisis across the continent.

European energy ministers met Tuesday to address the shortage, which is stinging homeowners and lifting prices for goods from metals to fertilizers. But there is little they can do to boost supplies immediately, and Russia isn't helping.

Heineken Nine-Month Net Profit Rose, 2021 Views Unchanged

Heineken NV said Wednesday that profit for the first nine months of the year rose significantly while beer volumes increased, and left its expectations for the full year unchanged.

The Dutch brewer--which also owns the Sol, Birra Moretti and Tiger beer brands--said that for the first nine months of 2021, it made a net profit of 3.08 billion euros ($3.57 billion), up from EUR396 million a year earlier and EUR1.67 billion for the same period in 2019.

BASF Raises Guidance After Posting Strong 3Q Sales

BASF SE on Wednesday raised its 2021 guidance after it said it generated strong sales growth in the third quarter.

The German chemicals conglomerate said it swung to a net profit of 1.25 billion euros ($1.45 billion) for the quarter to the end of September, compared with a net loss of EUR2.12 billion a year earlier.

Puma Raises 2021 Outlook After Profit, Sales Increased in 3Q

Puma SE said Wednesday that third-quarter net profit and sales rose as it increased part of its guidance for the full year.

The German sporting-goods company said quarterly net profit rose to 143.8 million euros ($166.7 million) from EUR113.6 million for the same quarter a year earlier.

Santander 3Q Profit Rose on Lower Provisions, Higher Revenue

Banco Santander SA on Wednesday said it is set to outperform its profitability guidance after reporting higher earnings in the third quarter on increased revenues and lower provisions.

The Spanish lender reported a net profit of 2.17 billion euros ($2.52 billion) from July to September, compared with a EUR1.75 billion profit in the same period a year earlier. The figure is above analysts' expectations of EUR2.03 billion, according to a consensus provided by FactSet.

Equinor Raises Buyback as Earnings Boosted by High Oil and Gas Prices

Equinor ASA on Wednesday posted higher-than-expected third-quarter adjusted earnings and raised the size of its share buyback as it benefited from the higher oil and gas prices during the quarter.

The company, which is 67%-owned by the Norwegian state, said adjusted earnings--its preferred measure--rose to $9.77 billion from $780 million, against $8.36 billion expected in a company-compiled consensus.

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.

Ukraine Wins Back Golden Treasures at Center of Dispute With Russia

MOSCOW-A Dutch appeals court ruled in favor of Ukraine in the case of a priceless collection of Crimean gold that Ukraine and Russia both claimed as their own, the latest in a cross-national dispute that had come to epitomize the Black Sea peninsula's complex and contested history.

The Amsterdam Court of Appeal said Tuesday it found no cause to reverse the earlier decision of a lower court that ordered the return of the treasures to Ukraine.

GLOBAL NEWS

U.S. Bans China Telecom Over National Security Concerns

The Federal Communications Commission revoked the license that allows China's largest telecom operator to do business in the U.S., citing national security concerns, dealing the latest in a series of blows against major Chinese businesses in the country.

The FCC said it was taking action against the state-owned China Telecom Corp.'s U.S. business because the company was "subject to exploitation, influence, and control by the Chinese government."

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.

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.

Sudan Military Coup Leaves No Clear Path Out of Nation's Political, Economic Crises

Pro-democracy protesters in Sudan vowed Tuesday to resist a military coup of their transitional government through nationwide civil disobedience, deepening a high stakes standoff that leaves the country with no clear path out of a debilitating economic and political crisis.

Much of the capital Khartoum and other major cities remained closed down, with protesters erecting roadblocks and most stores, banks, government offices and schools closed a day after the military detained the prime minister and other civilian leaders and declared a state of emergency.

Pfizer-BioNTech Covid-19 Vaccine for Young Kids Backed by FDA Advisers

Experts advising the Food and Drug Administration recommended that the agency authorize the Covid-19 vaccine from Pfizer Inc. and BioNTech SE for use in young children.

The panel of vaccine experts voted 17 to 0, with one abstention, endorsing the vaccine be permitted for children 5 years to 11 years of age and concluding that the benefits of the shot outweigh any risks.

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(END) Dow Jones Newswires

October 27, 2021 06:11 ET (10:11 GMT)

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