US futures rise ahead of Q3 GDP as earnings optimism eclipses inflation-related concerns

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US futures rose suggesting that earnings optimism outweighed caution before a first reading of third-quarter economic growth.

Tech stocks are soaring despite inflation threatening to end the loose monetary policy that has fuelled the rally.

One economist stated that "if (GDP) growth is not consistent with the consensus of 2.6%, then look first at inventory, which is a wildcard."

The US stock market rose on Thursday thanks to positive earnings from the technology sector. However, there was some caution ahead of an important read about US economic growth due to rising inflation.

Futures on the S&P 500 and Dow Jones rose 0.2% to 0.5% in European morning trade, indicating a better start for stock benchmarks later. The MSCI All-World Index of Global Shares fell 0.1% due to losses in Asia and Europe.

For sectors like tech stocks, which are subject to inflation, earnings season has been strong so far. Shares in companies like Microsoft, Apple, Facebook, and Tesla have reached new heights, fueling investor optimism.

Many executives, from the social media platform Twitter to the German carmaker Volkswagen to the US industrial conglomerate GE, have worried about the effects of kinks in global supply chains on their businesses. They also worry about the inflationary consequences of a shortage of labor in key sectors as well as a sharp rise in input prices.

"Fears of supply chain problems may last longer than expected pushed the S&P into negative territory. This weakness continued into the Asian session. The Nasdaq did marginally better after Google's parent firm Alphabet and Microsoft each released record-breaking results," broker IG stated in a note.

However, short-term US government bond yields rose by the highest level in 12 years in October. Fixed-income investors are pricing in a growing possibility that the Federal Reserve will reduce its asset-purchase program sooner to combat flaring inflation.

Overnight, the Bank of Canada shocked market watchers by abruptly ending asset purchases. It also surprised them with an unexpected signal that it might raise interest rates sooner than originally thought. Canadian government bonds were sold after the announcement.

Investors will be able to see the third quarter US economic growth report later Thursday. The three-month period ending September will see a 2.7% increase in gross domestic product. This would be the slowest quarter on quarter pace since the record 31.2% drop during the second quarter 2020.

Pantheon Economics chief economist Ian Shepherdson stated that GDP growth was likely to have slowed down to 2.75% due to temporarily stalled consumer. "If growth is not as expected, 2.6%, then look at the inventory component. It is a wildcard."

Michael Hewson (CMC Markets chief market strategist) stated in a daily notice that if the third quarter GDP was lower than expected, it would show up in the personal consumption component. This component has been resilient through the first half.

Matt Simpson, City Index analyst, said that a weak print could undermine the recovery. However we doubt it will stop the Fed from announcing tapering at its next meeting.

The European stock market was mixed. Stoxx 600 rose 0.1%, Frankfurt's DAX fell 0.1% and London's FTSE 100 dropped 0.3%. Gains in media and tech stocks offset losses across the oil and natural gas and basic resources sectors. The MSCI Asia ex Japan index fell 0.3% during the day.

Although the European Central Bank will meet later to discuss monetary policies, it is widely believed that they will leave the eurozone rates unchanged.

Gold was one of the best performing commodities on Thursday, as inflation worries began to bite.

Although gold can be used as an inflation hedge, rising yields may reduce its appeal. The price of gold has seen a 2.6% increase in October, its largest monthly gain since July. The price was at $1,803 per ounce when it was 0.2% higher.