North American Morning Briefing: Stock Futures Waver After Dow, S&P 500 Close at Records

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MARKET WRAPS

Watch For:

U.S. PPI for October; World Agricultural Supply & Demand Estimate.

Opening Call:

Stock futures wavered, pointing to muted opening moves for indexes that stand at record highs.

Futures for the S&P 500 traded flat Tuesday, a day after the benchmark index closed at an all-time high for the eighth consecutive session-the longest streak of records since 1997. If the broad stocks gauge climbs for a ninth straight trading day it would mark the longest winning streak since 2004, according to Deutsche Bank strategist Jim Reid.

Tesla shares ticked up 0.8% in premarket trading. The stock fell Monday after Chief Executive Elon Musk signaled he was open to selling a stake in the electric-vehicle maker worth around $21 billion.

After faltering in early fall, stocks took off in mid-October as solid earnings bolstered investors’ confidence in the economic recovery. Though some money managers remain concerned about elevated levels of inflation and the prospect of higher interest rates set by the Federal Reserve, many think stocks will continue to eke out gains.

Data on U.S. producer prices, due at 8:30 a.m. ET, will give clues about the outlook for inflation. Palantir Technologies is scheduled to report earnings before markets open, and cryptocurrency-exchange Coinbase Global after they close.

Strong demand from consumers is powering the U.S. economy and profits at its biggest companies, said Mike Bell, a strategist at JPMorgan Asset Management. “Of course that’s causing some inflationary pressure but the markets…are buying into the Fed narrative that rates aren’t going to go up too quickly,” he added.

Mr. Bell sees two main risks. A winter rush of Covid-19 cases could put pressure on hospital systems and prompt governments to reimpose some economy-slowing restrictions. Further out, he thinks investors are underestimating the extent to which the Fed will push up interest rates to quell inflation stemming from a tight labor market.

Overseas stock markets were mixed. The pan-continental Stoxx Europe 600 ticked up less than 0.1%, with gains for auto and materials stocks.

Shares of Munich Re fell 2.9% after losses from Hurricane Ida and summer floods in Europe weighed on the reinsurance firm’s third-quarter results. Rolls-Royce rose 4.3% after the manufacturer said it expected government funding to help develop small-modular nuclear reactors, as part of the U.K.’s net-zero plan.

Forex:

Upcoming U.S. inflation reports could fuel speculation that the Fed is moving closer to raising interest rates, potentially lifting the dollar, Commerzbank said.

Data on producer prices later and consumer prices on Wednesday are likely to increase inflation concerns but it looks as though the Fed might react to rising price pressures so the publications should be dollar positive, Commerzbank currency analyst You-Na Park-Heger said.

“The upside move in EUR/USD since the end of last week is therefore not likely to last in my view,” she said. “Over the coming days EUR/USD is likely to trade at lower levels once again.”

Bitcoin prices rose 2.8% to about $67,995, a record high.

Sterling’s recent gains probably reflect profit-taking or a closing of positions following previous sharp declines, given the absence of positive catalysts, BDSwiss said.

“I struggle to find any fundamental reason why the currency should be gaining,” BDSwiss analyst Marshall Gittler said.

The Bank of England’s senior officials have recently provided mixed messaging on whether an interest rate rise is imminent while political uncertainty is “heating up” with rising tensions between the U.K. and EU over the Northern Ireland protocol that is part of the Brexit trade deal, he said.

Bonds:

Bond markets have calmed after a spell of volatility that inflicted losses on some hedge funds. The yield on benchmark 10-year Treasury notes ticked down to 1.482% Tuesday from 1.496% Monday. The yield on two-year notes, meantime, edged lower to 0.435% from 0.447% Monday.

Pimco sees meaningful risk that Fed officials’ expectations for interest-rate rises are pulled further forward when the Fed’s next economic projections are released in December, said North American economist Tiffany Wilding and economist Allison Boxer.

That said, Pimco agrees with the Fed that the currently high inflation is likely to dissipate, even as this appears to take longer than initially thought. “Inflation that remains elevated for longer, even if it’s attributed to temporary factors, increases the risk that longer-term inflation expectations also adjust higher-something the Fed wants to avoid,” the economists added.

Pimco continues to expect the first post-pandemic interest-rate rise of the Fed in the first quarter of 2023, but with risks tilted toward earlier action.

The recent volatility in bond-market rates reflects a change in the inflation narrative, and could accelerate central-bank policy adjustments, Neuberger Berman said.

“As investors finally began to price mounting inflation concerns into their central bank policy rate expectations, they met with surprisingly little pushback from the policymakers themselves,” said Brad Tank, chief investment officer for fixed income at Neuberger Berman.

This has resulted in a spike in volatility at the front end of world-wide rate curves, and a growing sense that the “transitory” narrative is abandoned. “There is a change in the inflation narrative, although some policymakers appear reluctant to let go of the transitory story,” he said.

J.P.Morgan recommends investors remain cautious on both duration in eurozone government bonds and on intra-eurozone spreads, pointing to possible continued volatility.

“We see risks of volatility remaining elevated in the near-term making risk-reward less attractive in overweight,” J.P.Morgan said. To reflect its cautious near-term intra-eurozone view, JPM holds a light portfolio, but said it maintains its constructive medium-term view.

Commodities:

Oil price edged higher supported by tightness in global energy markets. After wavering and ending last week lower, “oil bulls took [the] opportunity to pile in below the $80 per barrel mark,” said Ipek Ozkardeskaya, senior analyst at Swissquote.

“The overall trend remains comfortably positive on the back of a decent energy crisis, which is not OPEC’s problem to solve,” she said, adding that that backdrop could lift U.S. oil prices toward $100 a barrel.

European natural-gas prices slipped 2.9% on signs that flows to Western Europe from Russia have picked up. Stockpiles of the key heating and power-generation fuel are running low and cooler temperatures are expected to boost demand over winter.

Gold prices wavered, hovering close to their highest level in just over two months, as investors await U.S. inflation data. The slight weakening looks set to end three consecutive days of gains for the precious metal, driven by a softer dollar and lower bond yields. Investors are sitting tight ahead of the release of U.S. CPI data Wednesday.

Investors are growing increasingly concerned that rising prices could last longer than expected, due to the knock-on effects of persistent supply bottlenecks. The data is expected to show prices rose in October at a faster rate. October core CPI is forecast at 0.4%, versus 0.2%, last month.

   
 
 
   
 
 

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November 09, 2021 06:10 ET (11:10 GMT)

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