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LIVE MARKETS-It's not about cost pressures - Golub

Wed, 13th Oct 2021 17:47

* Dow red, S&P 500 near flat, Nasdaq gains

* Financials weakest S&P sector; utilities leads gainers

* Euro STOXX 600 index up ~0.7%

* Gold up and bitcoin up; dollar and crude fall

* U.S. 10-Year Treasury yield ~1.54%
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U.S. companies will talk about the cost pressures they are
facing as they report third-quarter results in the coming weeks,
but investors should focus more on what they say about sales,
Jonathan Golub, chief U.S. equity strategist for Credit Suisse
in New York, said during the firm's conference call on the U.S.
earnings outlook Tuesday.

"What we're going to hear in earnings season is that
companies are feeling cost pressures, that that's the problem.
And while they're saying that, they're going to be fibbing to
you," he said.

"The real issue is that sales are going to be coming in
weaker, and ultimately sales are necessary to fuel the margins."

The reason for that is that labor and supply shortages are
not allowing companies to fill orders.

"It's not a cost squeeze," he said.

(Caroline Valetkevitch)


BOFA (1225 EDT/1625 GMT)

Sharp increases in Treasury yields have raised fears that
rising borrowing costs will spook riskier assets including
stocks, but equities actually perform better on days that yields
rise, according to Bank of America.

Data going back to 2005 show that the S&P 500 and
NYSE breadth are stronger on days when 10-year Treasury yields
rise, and weaker when the yields fall, Stephen Suttmeier said in
a report sent on Tuesday.

On days when the 10-year yield rose by more than 0.10% the
S&P 500 gained 69.3% of the time with an average return of
1.18%, and NYSE breadth was positive 73.3% of the time. When
yields fell by 0.10% or more, by contrast, the S&P 500 rose only
20% of the time, and posted an average loss of 1.90%, with NYSE
breadth only improving 15.3% of the time, Suttmeier said.

That pattern may bode well for stocks in the near-term, with
several market breadth indicators making higher lows as they
entered this month, even as the S&P 500 posted lower lows.
Treasury yields have also increased more aggressively since late
September, Bank of America said.

The improvement in market breadth, and a rising 200-day
moving average, indicates that recent weakness in stocks is a
correction driven by rotation within an uptrend, the bank said.

(Karen Brettell)



The STOXX 600 ended the day close to the session's high, up
0.7% and now set for weekly gains.

While the Q3 earnings season will only begin in earnest next
week in Europe, Germany's SAP lifting its guidance gave a big
boost to the tech sector and to sentiment in general.

The tech index rose 2.6%, its best session since May, and
was the most performing segment of the stock market.

The Personal and Household Goods index was second, up 1.8%,
boosted by UK house-builder Barratt Developments, which reported
that forward sales for the past three months had risen above
pre-pandemic levels.

Banks weren't that popular, losing 1.5% while in the U.S.,
JPMorgan fell after announcing its results.

After their recent surge, yields are taking a breather
across euro zone government bonds, which typically doesn't help
banking stocks.

Among individual stocks, France's Spie gained a handsome
8.5% after walking out the auction to buy Engie's unit Equans.

(Julien Ponthus)


EDT/1501 GMT)

The number of non-financial corporate debt issuers rated in
the AAA or AA categories by Fitch Ratings has steadily shrunk
over the past 20 years, falling to around 10 from nearly 50, the
credit rating agency said in a report on Wednesday.

"Many downgrades were caused by fundamental changes in the
underlying business environments, mostly due to increased
competition and technological changes," Fitch said, pointing to
affected sectors such as telecoms, electric utilities, and

"However, downgrades were also driven by financial policy
decisions to increase leverage," it added.

Technology was the only sector where upgrades into highly
rated categories were growing over the past decade. The report
cited technology's increasing economic role that was
strengthened by accelerated digitalization trends during the
coronavirus pandemic.

Meanwhile, the oil and gas sector faces long-term pressure
due to energy transition factors.

"As a result of the associated execution risk, ratings could
come under some pressure in the medium term if the transition is
not managed successfully," Fitch said. "However, the relatively
slow decline in oil consumption that we currently expect gives
the rated entities some time to adapt."

(Karen Pierog)


EDT/1442 GMT)

Leaves are falling - and even snow in some parts of the
country - but consumer prices and mortgage rates are pushing the
mercury higher.

The prices U.S. urban consumers pay for a basket of goods
rose by 0.4% in August, an acceleration from the
previous month and hotter than the 0.3% consensus.

"We need to bifurcate and see where the inflation is,"
writes Oliver Pursche, senior vice president at Wealthspire
Advisors. "It's not a one-size fits all answer."

Fair enough, so let's delve deeper into the Labor
Department's consumer price index (CPI) report. A 6.4% drop in
air fares - a predictable adjustment following the spikes in
early summer - was more than offset by gains in housing, new
cars and gasoline, among others.

Core CPI, which excludes volatile food and
energy prices, rose at 4% year-over-year, inline with

As to whether this report is likely to accelerate or have
little effect on the U.S. Federal Reserve's expected timeline
for tightening its monetary policy, opinions differ.

"It reassures the Fed because there were no surprises,"
Pursche adds.

But Peter Cardillo, chief market economist at Spartan
Capital, isn't quite so sure.

"Inflation is going to be more long-lasting than the Fed
expects," Cardillo says. "In my opinion this accelerates the
tapering move and we’ll probably get an announcement next

Minutes from the central bank's most recent monetary policy
meeting could shed light in that direction.

Core CPI, shown along with other major indicators in the
graphic below, continue to soar well above the Fed's average
annual 2% inflation target:

Separately, demand for home loans eked out a nominal gain
last week, according to the Mortgage Bankers Association (MBA),
despite yet another uptick in rates.

The average 30-year fixed contract rate grew by 4
basis points to 3.18%, marking the third consecutive weekly

Even so, applications for loans to purchase homes
jumped by 1.5%, a gain that was nearly completely
offset by a 0.5% decline in refi demand, which
constitutes the bulk of the total.

"Mortgage rates reached their highest level since June 2021,
but application activity changed little this week," notes Joel
Kan, associate vice president of economic and industry
forecasting at MBA.

Nancy Vanden Hauten, lead economist at Oxford Economics,
believes this data points to resiliency in the housing market
and suggests home sales could bounce back in September from
August's drop.

"We expect the housing market to continue to be buffeted by
the crosscurrents of strong demand, limited supply and high
prices," Hauten writes. "While mortgage rates remain relatively
low on a historical basis, the recent backup in mortgage rates
will take an added toll on homebuying affordability at the

Wall Street appeared to be dancing the same tango it's been
doing over the last few sessions - starting strong then steadily
running out of gas.

Most recently, all three major U.S. stock indexes were well
off their opening highs.

The S&P 500 and the Dow were dragged into negative territory
by weak financial stocks, while a meager gain in tech
is helping to keep the Nasdaq modestly green.

(Stephen Culp)


EDT/1405 GMT)

After an opening push higher, Wall Street's main indexes
have turned mixed. This as investors are digesting a solid rise
in monthly consumer prices, and a dip in bond yields.

The Dow and S&P 500 are now trading down on
the day. The Nasdaq, although already off its early
high, is being boosted by tech stocks, and is still in
positive territory.

Of note, the major indexes, as well as the S&P tech sector,
have all fallen three-straight days.

Meanwhile, with the U.S. 10-Year Treasury yield
back down to the 1.54% area, financials are taking the
biggest hit among S&P sectors.

Here is where markets stand in early trade:

(Terence Gabriel)



The Invesco QQQ Trust Series 1, which tracks the
Nasdaq 100 index, is down around 6% from its early
September high. In so doing, it has also violated a monthly
support line from its March 2020 low.

Meanwhile, one indicator that incorporates both price and
volume, the Money Flow index (MFI), continues to track within
converging trendlines:

On a monthly basis, and since early 2018, the MFI has been
trapped between a resistance line from its 2014 high and a
support line from its 2009 low.

After once again topping shy of the resistance line this
past August, the MFI appears on track for another test of the
support line. Another test of that support line could suggest
risk for greater QQQ weakness.

However, if the support line can continue to work its magic,
and the MFI can bottom, a significant QQQ low may once again be

Conversely, an MFI support line break will end what has been
a consistent pattern, and instead suggest potential that QQQ
weakness may become a waterfall slide.

(Terence Gabriel)



(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)

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