The Market Today

Corporate Earnings Take the Stage; Bitcoin ETF Launches


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

New Construction Data Disappoint Expectations on Multi-Family Pullback: Housing starts and building permits both disappointed expectations in September despite Monday’s better-than-expected homebuilder confidence report.  New starts fell 1.6% MoM while August’s starts were revised down from +3.9% to +1.2%.  By type, single family starts were unchanged in September while multi-family starts fell 5.0%.  Combining all of the disappointing results, overall starts were 3.7% lower in September than was expected.  New building permits filed in September were even more discouraging, plunging 7.7% after August’s encouraging 5.6% gain.  New permits now match their lowest level since August 2020.  Accounting for the decline were a 0.9% drop in single family permits and a 18.3% drop in multi-family.

Corporate Earnings: Reporting earnings early today were Bank of New York Mellon, Halliburton, Phillip Morris, and Proctor and Gamble; all of which beat expectations. Reporting after the bell will be Netflix and United Airlines.

Bitcoin ETF Launches: The first Bitcoin futures exchange traded fund will open today.  The ProShares Bitcoin Strategy ETF will actively trade futures contracts under the ticker BITO.


YESTERDAY’S ECONOMIC NEWS

Auto Manufacturing Weighs Heavily Again in September’s Industrial Production Report: September’s industrial production report was notably disappointing as further weakness in auto manufacturing exacerbated a more modest slowdown across other sectors. Total industrial production last month fell 1.3%, missing expectations for a 0.1% gain, and the 0.4% increase originally reported for August was revised to a 0.1% decline. Utilities output fell 3.6%, mining production dropped 2.3%, and manufacturing production declined 0.7%. The drop in manufacturing output disappointed expectations for a 0.1% gain and the 0.2% gain initially reported for August was replaced with a 0.4% drop. In the current month’s data, auto production sank 7.2% while manufacturing production excluding auto-related activity dropped 0.3%. The persistence of the chip shortage has pressured auto production down more than 15% in 2021.

Builder Sentiment Improves on Better Outlook for Sales, Future Sales, and Foot Traffic: Homebuilder confidence was better than expected in October, rising from 76 to 80, its highest level in four months and the largest monthly improvement since late-2020.  Driving the index higher were improvements in present sales (+5 pts. To 87), expectations for future sales (+3 pts. To 84), and prospective buyer foot traffic (+4 pts. To 65).  Geographically, all regions reported better sentiment.  The index points to a late-2021 uptick in new sales and new construction activity.


TRADING ACTIVITY

Stocks Add to Last Week’s Gains Amid Earnings as Fluctuating Oil Prices and Treasury Yields Provide Fodder for Inflation Debate: The S&P 500 managed a 0.3% gain to start the week as an early-morning increase in Treasury yields was tempered during U.S. trading and oil prices pulled back from their highest levels in seven years. After posting a solid weekly gain, U.S. index futures had weakened overnight Sunday amid mixed trading in Asia after Chinese economic data signaled activity had slowed more than expected in the third quarter. The weakness persisted in European trading as oil prices and Treasury yields extended their recent climbs. Sovereign yields were under pressure more broadly, led by sharp increases in shorter U.K. yields following weekend hints from the Bank of England’s Governor that rate hikes were likely to come soon. Although the 2-year U.K. gilt yield spiked 13.1 bps higher on the day, the 2-year Treasury yield ended up just 0.4 bps to 0.399%, having reached as high as 0.44% in early trading. The 10-year Treasury yield also rose 0.4 bps to 1.576% following an earlier rise to 1.625%. The turnabout for U.S. yields occurred alongside a pullback in oil prices and after U.S. industrial production disappointed (more above). As those moves reversed, the S&P 500 erased its opening decline and began a climb that ended near session highs. The index was boosted by gains in most sectors, including a nearly 2% gain for home building stocks following the better-than-expected update on homebuilder confidence (more above).

Following the reversal higher in the U.S. on Monday, global stocks have strengthened overnight and U.S. futures pointed to more gains. U.S. index futures were higher by around 0.5% at 7 a.m. CT, in front of a smaller 0.2% gain in Europe but trailing a stronger 1% jump earlier in Asia. Earnings will continue to be a key focus for investors as Netflix and United Airlines will report after the bell today. Already this morning, Johnson & Johnson, several financial institutions, and Proctor & Gamble all beat earnings expectations, although pre-market moves for the shares were mixed. While European yields ticked higher, U.K. yields settled down following big gains yesterday and the Treasury curve was steepening on declines in shorter maturities. The 2-year yield was 3.2 bps lower to 0.395% at 7:25 a.m., the 5-year yield had declined 2.6 bps to 1.144%, and the 10-year yield had edged up 0.2 bps to 1.602%.


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