Ifo Joint Economic Forecast of German economic research institutes; ECB’s Elderson speaks; updates from Galp Energia, Vinci, easyJet.
Stocks should open higher after U.S. stocks rose in a choppy session. Dollar weakened against major currencies. Oil rose, gold edges lower, and zinc advanced.
European stocks are set tp rise in early trade Thursday after the S&P 500 rose in choppy trading to snap a three-session losing streak.
In the U.S., traders seemed to shrug off a hotter-than-expected inflation reading and confirmation of the Federal Reserve’s plans to begin reducing its bond-buying stimulus program.
Monetary stimulus, government spending and effective Covid-19 vaccines have helped power the economy and send the S&P 500 up 95% from its March 2020 low. But lately concerns over supply-chain problems, rising government bond yields and rallying oil prices have dented the mood, leaving the U.S. stock benchmark off 3.8% from its early-September record.
“We’re moving into this middle part of the market cycle where fundamentals become a lot more important than macro factors,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “The markets are going through some growing pains.”
Investors worry that rising inflation will eat into corporate profit margins and potentially spur the Federal Reserve to accelerate its plans to lift interest rates. “I think the Fed might be forced to raise rates quicker than they want to,” said Carter Henderson, portfolio manager at Fort Pitt Capital Group. “Inflation, in my eyes, is not transitory.”
Stocks to Watch: Zurich Insurance is expected to show momentum in its third-quarter underwriting results, Morgan Stanley said. The bank ticked up its earnings-per-share forecast by 0.3% ahead of Zurich’s nine-month update on slightly adjusted revenue.
The Swiss insurer’s business model should be resilient if economic conditions worsen, but it is also a stock that can perform well if the macroeconomic backdrop improves, MS added.
The bank raises its target price to CHF450 from CHF440 as a result of movements in the CHF/USD exchange rate. Zurich is due release its 9-month update on Nov. 11.
Changes to Salvatore Ferragamo’s executive team should enhance management at the Italian luxury-goods company ahead of the arrival of a new CEO, Stifel said.
Ferragamo said Tuesday that it was appointing Daniella Vitale and Vincenzo Equestre to lead its North America and EMEA businesses, respectively. The pair’s track records at brands including Gucci, Tiffany, L’Oreal and LVMH will strengthen the company and smooth the integration of Marco Gobbetti, who is due to take the reins after leaving U.K. fashion firm Burberry, Stifel said.
A new creative director to fill the current vacancy would be a fresh positive for Ferragamo, the financial-services firm adds; some observers have pointed to Gobbetti’s colleague at Burberry, Riccardo Tisci, as a strong candidate.
The dollar was weaker against major currencies, including 0.4% against the euro and 0.1% against the yen. The dollar has softened since release of inflation data that Cambridge Global Payments’ Karl Schamotta said has outpaced forecasts and is at its highest since 2008. “Market-implied odds on a rate hike by the end of 2022–near 90 percent–remain essentially unmoved.”
While many central bankers remain convinced inflation will subside as supply-chain issues are resolved, Schamotta said, doubts are clearly creeping in–notably from Atlanta Fed President Raphael Bostic, who’s discontinuing use of “transitory” to describe the current run of inflation. Schamotta added:
“It is becoming increasingly clear that the feature of this episode that has animated price pressures–mainly the intense and widespread supply-chain disruptions–will not be brief.”
Cryptocurrency regulation needs to be treated as a matter of urgency as the sector continues to expand at a rapid pace, Bank of England Deputy Governor Jon Cunliffe said.
“Financial stability risks currently are relatively limited but they could grow very rapidly if, as I expect, this area continues to develop and expand at pace,” he said in a speech to the to the SIBOS conference.
“How large those risks could grow will depend in no small part on the nature and on the speed of the response by regulatory and supervisory authorities.” Bitcoin fell 3.6% to $54,925 and Ethereum dropped 2.6% to $3,438, according to CoinDesk on Wednesday.
The gap between yields on shorter- and longer-term Treasurys narrowed Wednesday after data showed inflation accelerated slightly in September, fueled by investors’ bets that the Federal Reserve may need to tighten monetary policy sooner than expected.
Yields on longer-term Treasurys retraced an initial climb and headed lower after Labor Department data showed the U.S. consumer-price index rose 0.4% on a seasonally adjusted basis in September, up from 0.3% in August. Economists surveyed by The Wall Street Journal had expected 0.3%.
The narrowing gap between shorter- and longer-term yields suggests investors expect that the Fed might increase rates faster than they previously anticipated, which could slow growth further out in the future. Central-bank officials have said that much of the recent pickup in inflation is temporary and expect it to moderate in the years ahead, particularly as supply-chain bottlenecks ease.
“There’s a lot more sensitivity to inflation data now,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “The market is becoming more and more concerned that we are getting an inflationary shock.”
Oil rose after American Petroleum Institute data showed Cushing crude oil inventories fell 2.3 million barrels in the latest week. The market appears more focused on the fairly large draws seen in Cushing as well as on the product side, ING said.
Gold was slightly lower on a likely technical correction in the early Asian session after gold futures surged 2% on Wednesday. Gold has tentative resistance at $1,800/oz, but that might not prove to be too difficult to break if risk aversion runs wild, Oanda said.
Safe-haven flows are beginning to come gold’s way, whether it’s speculation of a tariff announcement from the Biden administration or rising interest rates that will destabilize the recovery of many emerging markets, Oanda added.
Zinc advanced in the Asian morning session amid supply woes. Nyrstar, one of the world’s largest zinc producers, said Wednesday it will curtail output further at its three European smelters in response to surging energy prices, cutting production by up to 50%.
This follows Nyrstar’s announcement last week that it cut production at its smelter in the Netherlands, ING said, estimating there could be around 40,000 to 50,000 tons of losses of zinc metal per month. Three-month LME zinc futures were up 1.0% at $3,434.00 a ton.
TODAY’S TOP HEADLINES
China’s September Producer Prices Rose at Fastest Pace in Over 20 Years
BEIJING-China’s factory-gate prices in September rose at their fastest pace in more than two decades.
The producer-price index rose 10.7% from a year earlier in September, accelerating from the 9.5% increase in August, boosted by soaring prices of raw materials, the National Bureau of Statistics said Thursday. The reading beat the expectation of economists polled by The Wall Street Journal, who had forecast PPI to rise 10.4%.
Fed Official Sees Risks of More Persistent Inflation
A Federal Reserve official warned in a speech Wednesday night of growing risks that supply-chain disruptions could keep inflation elevated for longer than forecasters have anticipated.
While monthly inflation readings should decline from high rates observed in the spring, “I still see a material risk that supply-related pricing pressures could last longer than expected,” said Fed governor Michelle Bowman in remarks prepared for delivery at South Dakota State University in Brookings, S.D.
Fed Worried About Inflation Risk as It Firmed Up Tapering Plan
Federal Reserve officials last month worried that disrupted supply chains were raising the risks of more persistent inflation as they firmed up plans to reduce their bond-buying stimulus program next month and conclude it by the middle…