US Open Note – Stocks oscillate near record highs; commodity currencies hold firm

Stocks consolidate gains as earnings surprise

Stock markets have been relatively flat marginally below their summer record highs during early US trading hours on Thursday, with the pan-European STOXX 600 consolidating last week’s impressive rebound and US stock indices switching between gains and losses.

While investors were almost convinced that higher input costs, labor shortages and lack of raw materials would raise serious concerns among companies, the earnings season has surprisingly been a tailwind to equity markets so far, showing profits remaining solid and stronger than analysts expected despite the pandemic's nasty supply effects.

Netflix managed to beat subscription estimates on Tuesday, and Tesla’s Q3 earnings will probably add more fuel to the stock rally today after the market close given its record car deliveries in model 3 and model Y during the three months to September.

Bond yields could be a threat to stocks

However, if bond yields keep trending up on the back of inflation and monetary tightening fears, equities could become less attractive to investors, especially those with rich valuations. Perhaps that moment has not come yet as central banks are still largely stuck to the view that the current price pressures will prove transitory, as ECB member Francois Villeroy de Galhau attempted to reiterate today.

Yet, it’s obvious that many policymakers have already started to switch sides, including Fed board member Christopher Waller, who was the latest to call for higher interest rates on Tuesday. It would be interesting to see if more Fed policymakers join the hawkish club today. Kashkari, Bostic, Quarles and Bullard will all be speaking today between 16:00 – 17:45 GMT, while at 18:00 GMT, the Fed's Beige book will shed more light on US economic conditions.

Canadian inflation crawls up, commodity currencies stand firm

In Canada, consumer prices saw another pickup in October, justifying the BoC’s bond tapering actions. The headline CPI index inched to 4.4% y/y from 4.1% previously, beating the forecast of 4.3% as well, but the loonie could not obstruct any gains by the dollar, remaining stable around 1.2355.

Today's 1.60% decline in oil prices has probably stolen some shine from the loonie, though with crude prices maintaining a broad positive trajectory, and the Fed lagging the BoC in terms of monetary tightening, the loonie may have more winning battles ahead.

Note that EIA oil inventories are on the agenda today at 14:30 GMT.

In other commodity-dependent currencies, the Australian and New Zealand dollars have also been benefiting from surging prices in raw materials. The improving risk sentiment has provided an extra boost to the aussie and the kiwi, especially against the safe-haven Japanese yen.

Meanwhile, the pullback in Treasury yields pressed dollar/yen lower after the peak at a fresh three-year high of 114.64. Euro/dollar was flat at 1.1640, while pound/dollar was marginally lower at 1.3739.

In metals, gold is pushing for its second daily gain, though a major resistance still lies ahead at $1,795.

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