North American Morning Briefing: Stock Futures Slip as Bond Yields Hit Three-Month High

BY Dow Jones & Company, Inc. | ECONOMIC | 09/28/21 06:10 AM EDT

MARKET WRAPS

Watch For:

U.S. S&P CoreLogic Case-Shiller Home Price Index for July; U.S. Consumer Confidence for September.

Opening Call:

Government bond yields hit their highest level in three months and stock futures sagged as investors rotated out of interest-rate sensitive technology stocks.

Some investors are recalibrating portfolios to prepare for the gradual end of the ultra-supportive monetary policies employed to see the economy through the worst of the coronavirus-driven downturn. Rising yields make bonds more attractive than equities, especially highly-valued tech stocks for which investors count on profit growth far into the future.

"People are realising, or at least remembering, that central banks are going to have to start raising rates," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "The patient has become used to being given all these drugs, but soon those drugs are going to have to be reduced."

Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen are set to appear before a Senate panel at 10 a.m. ET to discuss the state of the economic recovery.

Overseas, European markets slumped, while Asian indexes were mixed. The pan-continental Stoxx Europe 600 fell 1.1%, led by losses among tech stocks.

In Hong Kong, signs of support from China's central bank helped boost beaten-down shares of Chinese real-estate developers. The People's Bank of China said late Monday it would "maintain the healthy development of the property market and safeguard the legitimate rights and interests of house buyers."

Forex:

The dollar rose along with U.S. Treasury yields before Federal Reserve Chair Jerome Powell's testimony to the Senate Banking Committee later. Powell will say that the Fed would raise interest rates if sustained higher inflation became a serious concern, according to pre-released comments of his testimony.

The DXY dollar index rises to a five-and-a-half-week high of 93.5940 and EUR/USD falls to a five-and-a-half-week low of 1.1674, according to FactSet. "The DXY dollar index is still having difficulty climbing above the August high of 93.73 and this is reflected in the EUR/USD's ability to hold the line close to 1.17," Unicredit analysts said.

The European Central Bank's loose policy stance means the euro looks vulnerable to rising short-term U.S. Treasury yields, ING said ahead of the ECB's Sintra forum later. EUR/USD could fall below the key 1.1665 support level today, ING analysts said.

ECB President Christine Lagarde will deliver Sintra's opening speech at 1200 GMT and "the focus will be on ECB's view on inflation--likely still viewed as transitory-- and any hints over how the end of the Pandemic Emergency Purchase Programme scheme will be handled next March," the analysts said.

The shortage of truck drivers and lack of fuel at petrol stations in the U.K. are becoming increasingly serious but are so far having little impact on the pound, Commerzbank said.

"This is mainly due to the Bank of England, which is increasingly emphasizing its willingness to fight higher inflation risks (which supply bottlenecks also entail) with interest rate hikes if necessary," Commerzbank currency analyst Esther Reichelt said.

BOE Governor Andrew Bailey on Monday said that interest rates could be raised before Christmas if needed to stem inflation.

Bonds:

Expectations of tighter monetary policy and concerns about inflation pressures pushed bond yields higher. The yield on the benchmark 10-Year Treasury note rose for a sixth consecutive day Tuesday, to 1.533%, from 1.482% Monday.

Euro rates are currently being driven upwards by a global trend, said ING's rates strategists. "We think EUR rates had nothing more than a passenger's role in the rise of global rates of late," said ING's rates strategist team.

They add that European Central Bank speakers have made it "abundantly clear" that the recent, and upcoming, rise in inflation doesn't warrant a policy response. The key event for euro bond investors is the ECB's virtual conference starting Tuesday.

Commodities:

Oil prices rose, with both benchmarks hitting their highest prices in three years and Brent grazing the $80-a-barrel mark. Both benchmarks have gained 11% or more over the past month, with growing signals that demand is running ahead of supply and that global inventories are falling. Adding to moves is a spate of bets on higher prices from analysts and traders.

Goldman Sachs raised its year-end Brent price to $90 Monday, while Trafigura and other trading houses have spoken out about their bullish predictions. The recent surge in natural gas prices has also helped bets that crude will benefit from excess demand.

Natural gas prices set fresh highs Tuesday. U.S. Henry Hub natural gas prices jumped 5.8% to $6.06 per million British thermal units, their highest since 2014.

Metal prices edged lower ahead of testimony from Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen to U.S. lawmakers. Three-month copper prices on the LME dropped 0.4% to $9,311.50 a metric ton while Comex gold futures fell 0.6% to $1,742.20 a troy ounce.

Powell is expected to tell lawmakers that a surge in inflation because of bottlenecks in supply chains has been larger and lasted longer than expected, but should abate in time.

Powell is also likely to be quizzed on the Fed's bond buying program after he said last week that the central bank could begin reducing asset purchases as soon as November.

TODAY'S TOP HEADLINES

Merck Nears Deal to Acquire Acceleron Pharma

Merck & Co. is in advanced talks to acquire Acceleron Pharma Inc., according to people familiar with the matter, in a move that would bolster the pharmaceutical giant's rare-disease business.

The deal for Acceleron, which has a market value of around $11 billion, could be announced this week, assuming talks don't fall apart, the people said.

Read More ->

Ford Fortifies EV Bet With Four New Factories in Tennessee and Kentucky

Ford Motor Co. plans to build its first new U.S. assembly plant in decades, along with three battery factories, to fortify its push into electric vehicles as the industry accelerates green-tech investments.

The Dearborn, Mich., auto maker said Monday that it would build two battery factories in Kentucky and a third in western Tennessee alongside a new truck factory set to begin producing electric F-series pickups by 2025.

Read More ->

Sunac Leads Rebound in Chinese Property Stocks

Sunac China Holdings Ltd. led a rebound in Chinese property stocks Tuesday, after the real-estate developer played down a leaked request for government help and the country's central bank signaled its support for the sector.

Sunac, which is listed in Hong Kong, said on an official social-media account that the text was a draft by a company representative who was preparing to speak with local-government officials in the eastern city of Shaoxing. It said the draft had leaked after the representative accidentally shared it with a real-estate chat group.

Read More ->

Sanofi Ends a Covid-19 Vaccine Effort, Saying Market Is Already Well Served

Sanofi SA won't proceed with the development of one of its experimental Covid-19 vaccines, saying it didn't make sense to go forward in an already-crowded market.

The decision comes despite promising early results for the shot. The French healthcare giant said Tuesday that the vaccine-a so-called mRNA shot that uses the same technology as shots developed by Pfizer Inc. and Moderna Inc.-produced neutralizing antibodies against the virus in early-stage clinical trials. But it said it had decided not to proceed with larger studies, called Phase 3 trials, which would be required to win regulatory approval.

Read More ->

Big Tech Companies Amass Property Holdings During Covid-19 Pandemic

The biggest U.S. companies are sitting on record piles of cash. They are getting paid next to nothing for holding it, and they are running out of ways to spend it.

So they are buying a lot of commercial real estate.

Read More ->

Activision Blizzard Agrees to Pay $18 Million to Settle EEOC Probe

Activision Blizzard Inc. on Monday said it had agreed to pay $18 million as part of a settlement with the Equal Employment Opportunity Commission, which had been examining allegations of gender-based harassment and retaliation at the embattled videogame-publishing giant.

Santa Monica, Calif.-based Activision, with about 10,000 employees across the world, agreed to an outside monitor approved by the EEOC to make sure Activision is complying with its settlement agreement, according to a company press release. The findings by the outside consultant will be reported regularly to the EEOC and Activision's board of directors, the company said.

Read More ->

Smiths Group Agrees to $2.4 Bln Smiths Medical Sale to ICU Medical

Smiths Group PLC said Tuesday that it has now agreed to sell its medical unit to ICU Medical Inc. for $2.4 billion, and will return 737 million pounds ($1.01 billion) of the money to shareholders.

The engineering company, which said earlier this month that it had agreed to sell the unit to ICU Medical, said the enterprise value of the deal is $2.7 billion.

Read More ->

Debt-Ceiling Standoff Distorts Short-Term Treasury Market

The U.S. debt-ceiling standoff is skewing investor preferences for different types of Treasurys.

Investors are demanding more yield to hold some short-term Treasurys with the greatest risk of delayed payment. Meanwhile, they are driving down yields on a dwindling supply of others, with the Treasury Department slowing short-term borrowing to push off hitting the ceiling.

Read More ->

GOP Senators Block Democratic Bill to Fund Government and Suspend Debt Ceiling

WASHINGTON-Senate Republicans blocked a Democratic bill that would both fund the government and raise the country's borrowing limit, escalating a political showdown over the government's finances just days before it runs out of money.

Senate Democrats sought to pass a House-approved stopgap measure that funds the government through Dec. 3, 2021, and suspends the debt limit through Dec. 16, 2022. They are racing to send the legislation to President Biden's desk before the government's current funding expires at 12:01 a.m. Oct. 1.

Read More ->

Big Tech Companies Amass Property Holdings During Covid-19 Pandemic

The biggest U.S. companies are sitting on record piles of cash. They are getting paid next to nothing for holding it, and they are running out of ways to spend it.

So they are buying a lot of commercial real estate.

Read More ->

Fed Chief Jerome Powell Says Inflation Is Elevated but Likely to Moderate

Inflation is likely to stay high in the coming months before moderating, Federal Reserve Chairman Jerome Powell is set to tell Congress at a hearing on Tuesday morning.

In testimony released by the central bank on Monday, Mr. Powell largely repeated remarks he made at a news conference last week after the central bank indicated it was likely to begin reversing its easy-money policies at its next meeting, Nov. 2-3.

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SEC Panel Backs Letting Ordinary Investors Into Private Equity

An advisory group for the Securities and Exchange Commission voted Monday to recommend making it easier for less- wealthy people to invest in private funds, a change long sought by asset managers.

The SEC's Asset Management Advisory Committee unanimously approved a report recommending that the regulator increase ordinary investors' access to private-equity, private-debt and real-estate vehicles.

Read More ->

German Consumer Confidence Is Expected to Increase in October

Consumer sentiment in Germany is expected to strengthen in October, reaching its highest level for the last year and a half, according to data from market-research group GfK released on Tuesday.

GfK's forward-looking consumer sentiment index forecasts confidence among households rising to 0.3 point in October from minus 1.1 points in September. Economists polled by The Wall Street Journal anticipate a drop, expecting sentiment to decline to minus 1.9 points.

Read More ->

East Asia's Economies Face Slowing Growth and Rising Inequality, World Bank Warns

HONG KONG-Most countries in East Asia face major setbacks in recovering from the coronavirus, the World Bank said, adding to concerns that the resurgent pandemic will widen the economic divide between the region and the Western world.

With the notable exception of China, economic activity across the region has sputtered since the second quarter amid outbreaks of the Delta variant of the coronavirus and relatively slow vaccine rollouts, leading some multilateral institutions to cut growth forecasts for most economies in the region and warn about longer-term problems such as rising inequality.

Read More ->

North Korea Fires Short-Range Missile Off Its East Coast, South Korea Says

SEOUL-North Korea has launched at least one short-range missile off its east coast, South Korea's military said, as Pyongyang turns back to weapons tests with greater frequency amid a stall in nuclear talks with the U.S.

The missile was launched around 6:40 a.m. local time on Tuesday, before splashing into the waters between Korea and Japan, said South Korea's military, which had detected a single projectile. The precise type of weapon-including if it was a ballistic missile-and the distance flown weren't immediately shared by South Korea's military.

Read More ->

China Releases Two U.S. Citizens Blocked From Leaving Since 2018

China has let go two Americans who have been banned from leaving the country since 2018 and allowed them to return to the U.S. following a Justice Department deal with a Chinese-technology company executive, according to people familiar with the situation.

The exit from China of Victor Liu and Cynthia Liu over the weekend coincided with the U.S. deal last week that freed Huawei Technologies Co. Chief Financial Officer Meng Wanzhou and the almost simultaneous departure from China of Canadian prisoners.

Read More ->

Beijing Claims Victory Over Huawei Executive's Return

TAIPEI-When Huawei Technologies Co. executive Meng Wanzhou arrived in Shenzhen after nearly three years' confinement in Vancouver, 430 million Chinese viewers tuned into a livestream by China's state broadcaster, while posts about her racked up more than a billion views.

Absent from Chinese state media was any mention of the release of two Canadian citizens by Chinese authorities within minutes of Ms. Meng boarding her plane.

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Write to sarka.halas@wsj.com

TODAY IN CANADA

Earnings:

None scheduled

Economic Indicators (ET):

0830 Jul Payroll employment, earnings & hours

Headlines:

Aurora Cannabis Stock Edges Lower as Sales Miss Estimates

Aurora Cannabis was slipping in premarket trading Tuesday after fiscal fourth-quarter sales missed analysts' estimates but the Canadian cannabis company said cost savings should "clear a path" for being adjusted Ebitda positive.

Sales in the period fell to C$54.8 million from C$68.4 million a year earlier. Analysts were projecting sales of C$ 56.4 million.

The company posted a fourth-quarter loss of C$134 million, much narrower than a year-earlier loss of C$1.84 billion.

"We are very pleased with our strategic and financial progress in growing our high-margin medical revenue, rationalizing expenses, strengthening our balance sheet, and reducing our cash burn during fiscal year 2021," said Chief Executive Miguel Martin in a statement Monday.

Expected Major Events for Tuesday

06:00/GER: Oct GfK consumer climate survey

06:45/FRA: Sep Consumer confidence survey

11:45/US: Weekly Chain Store Sales Index

12:30/CAN: Jul Payroll employment, earnings & hours

12:30/US: Aug Advance Economic Indicators Report

12:30/US: 2Q U.S. International Investment Position

12:55/US: 09/25 Johnson Redbook Retail Sales Index

13:00/US: Jul U.S. Monthly House Price Index

13:00/US: Jul S&P CoreLogic Case-Shiller Indices

14:00/US: Sep Richmond Fed Business Activity Survey

14:00/US: Sep Consumer Confidence Index

17:00/US: Aug Money Stock Measures

20:30/US: 09/24 API Weekly Statistical Bulletin

23:01/UK: Sep REC JobsOutlook survey

23:01/UK: Sep Shop Price Index

23:50/JPN: Sep Provisional Trade Statistics for 1st 10 days of Month

All times in GMT. Powered by Kantar Media and Dow Jones.

Expected Earnings for Tuesday

CCUR Holdings Inc (CCUR) is expected to report for 4Q.

Cal-Maine Foods Inc (CALM) is expected to report $-0.62 for 1Q.

Comtech Telecommunications Corp (CMTL) is expected to report $0.24 for 4Q.

FTI Consulting (FCN) is expected to report $1.49 for 4Q.

Factset Research Systems (FDS) is expected to report $2.55 for 4Q.

H2O Innovation (HEO.V) is expected to report for Full year.

Micron Technology (MU) is expected to report $2.22 for 4Q.

NetSol Technologies Inc (NTWK) is expected to report for 4Q.

Orbit Garant Drilling (OGD.T) is expected to report for 4Q.

Park City Group (PCYG) is expected to report $0.05 for 4Q.

Sunlink Health (SSY) is expected to report for 4Q.

Synnex Corp (SNX) is expected to report $1.60 for 3Q.

Thor Industries (THO) is expected to report $2.90 for 4Q.

United Natural Foods Inc (UNFI) is expected to report $0.68 for 4Q.

Vintage Wine Estates Inc (VWE.U.T) is expected to report for 4Q.

Webco Industries Inc (WEBC) is expected to report for 4Q.

bebe stores (BEBE) is expected to report for 4Q.

Powered by Kantar Media and Dow Jones.

ANALYST RATINGS ACTIONS

Allogene Therapeutics Raised to Outperform From Market Perform by Raymond James

Allogene Therapeutics Raised to Outperform From Market Perform by Raymond James

Altice USA Cut to Market Perform From Outperform by Raymond James

Altice USA Cut to Neutral From Outperform by Credit Suisse

Ambarella Raised to Overweight From Sector Weight by Keybanc

American Water Works Cut to Underperform From Neutral by B of A Securities

Amgen Cut to Neutral From Outperform by Daiwa Capital

AvalonBay Raised to Hold From Sell by Deutsche Bank

Axcella Health Cut to Neutral From Buy by Goldman Sachs

Bath & Body Works Raised to Buy From Hold by Argus Research

Bath & Body Works Raised to Overweight From Neutral by Atlantic Equities

Big Lots Cut to Neutral From Overweight by Piper Sandler

BJ's Restaurants Raised to Buy From Hold by Jefferies

Box Raised to Market Outperform From Market Perform by JMP Securities

Camden Property Trust Raised to Buy From Neutral by B of A Securities

CenterPoint Energy Raised to Overweight From Sector Weight by Keybanc

Cheesecake Factory Raised to Buy From Hold by Jefferies

China Evergrande Loses Support of Hong Kong Tycoon Amid Debt Crisis

Chuy's Holdings Raised to Buy From Hold by Jefferies

Cidara Therapeutics Raised to Strong Buy From Buy by WBB Securities

Clean Harbors Raised to Market Outperform From Market Perform by CJS Securities

Coherent Cut to Neutral From Positive by Susquehanna

Dave & Busters Raised to Buy From Hold by Jefferies

Delta Air Cut to Hold From Buy by Argus Research

DXC Technology Cut to Neutral From Buy by MoffettNathanson

Eargo Cut to Equal-Weight From Overweight by Wells Fargo

Eargo Cut to Market Perform From Outperform by William Blair

Eargo Cut to Underweight From Overweight by JP Morgan

Echo Global Logistics Cut to Market Perform From Outperform by Barrington Research

Energy Transfer Raised to Buy From Hold by Tudor Pickering

Equity Residential Raised to Hold From Sell by Deutsche Bank

FedEx Cut to Market Perform From Outperform by Raymond James

FibroGen Cut to Sell From Neutral by Goldman Sachs

Frequency Therapeutics Cut to Neutral From Buy by Goldman Sachs

General Dynamics Raised to Neutral From Sell by Goldman Sachs

General Mills Cut to Underweight From Equal-Weight by Morgan Stanley

Hexcel Cut to Neutral From Buy by Seaport Global

Hostess Brands Raised to Overweight From Equal-Weight by Morgan Stanley

Hyatt Hotels Cut to Underperform From Neutral by B of A Securities

Incyte Raised to Market Perform From Underperform by SVB Leerink

Infinera Cut to Neutral From Buy by MKM Partners

InnovAge Holding Cut to Market Perform From Outperform by William Blair

L3Harris Technologies Cut to Sell From Neutral by Goldman Sachs

Lockheed Martin Cut to Neutral From Buy by Goldman Sachs

Lordstown Motors Cut to Sell From Neutral by Goldman Sachs

Mercury Systems Cut to Neutral From Buy by Goldman Sachs

National Instruments Raised to Buy From Neutral by Goldman Sachs

Northfield Bancorp Cut to Neutral From Overweight by Piper Sandler

Northrop Grumman Raised to Neutral From Sell by Goldman Sachs

Oneok Raised to Outperform From Market Perform by Bernstein

OraSure Cut to Market Perform From Outperform by Raymond James

Oshkosh Cut to Hold From Buy by Jefferies

PacWest Bancorp Raised to Buy From Hold by Truist Securities

Peoples Bancorp (Ohio) Raised to Overweight From Neutral by Piper Sandler

Plug Power Raised to Overweight From Neutral by Piper Sandler

PMV Pharmaceuticals Raised to Buy From Neutral by Goldman Sachs

RBC Bearings Raised to Buy From Hold by Truist Securities

RE/MAX Holdings Cut to Equal-Weight From Overweight by Morgan Stanley

Red Robin Raised to Buy From Hold by Jefferies

Roku Cut to Equal-Weight From Overweight by Wells Fargo

Roku Raised to Buy From Neutral by Guggenheim

Seelos Therapeutics Raised to Buy From Neutral by Roth Capital

Signify Health Cut to Neutral From Outperform by Baird

Simon Property Raised to Buy From Hold by Argus Research

SL Green Realty Raised to Neutral From Underperform by B of A Securities

SmileDirectClub Cut to Hold From Buy by Stifel

South State Raised to Buy From Neutral by DA Davidson

Spire Inc Raised to Buy From Neutral by Mizuho

Steven Madden Raised to Buy From Hold by Jefferies

Summit Hotel Cut to Underperform From Buy by B of A Securities

Talis Biomedical Cut to Underweight From Neutral by JP Morgan

TEGNA Cut to Market Perform From Outperform by Barrington Research

Tenable Holdings Raised to Buy From Hold by Berenberg

The Bulls May Still Be Driving, but The Bears Are Waking -- Barron's

Trimble Cut to Underweight From Equal-Weight by Morgan Stanley

TriplePoint Venture Grwth Raised to Buy From Neutral by Compass Point

United Rentals Cut to Mixed From Positive by OTR Global

Vail Resorts Raised to Overweight From Sector Weight by Keybanc

Valley National Bancorp Raised to Neutral From Sell by Citigroup

Ventas Raised to Strong Buy From Outperform by Raymond James

Viant Technology Raised to Market Outperform From Market Perform by JMP Securities

Vir Biotechnology Cut to Neutral From Buy by Goldman Sachs

Vornado Raised to Neutral From Underperform by B of A Securities

Warner Music Group Raised to Overweight From Equal-Weight by Barclays

Xponential Fitness Raised to Strong Buy From Market Perform by Raymond James

Zumiez Cut to Hold From Buy by Jefferies

Zymergen Cut to Underweight From Neutral by JP Morgan

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


  (END) Dow Jones Newswires
  09-28-21 0610ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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