MARKET WRAPS

Stocks:

European stocks mostly fell as investors awaited data on U.S. consumer prices, amid building concerns over inflationary pressures in the global economy.

Meanwhile, Chinese economic data released Wednesday added to inflation concerns. Factory-gate prices in China rose at a record pace in October, due in part to surging energy costs. The nation's producer-price index rose by a record 13.5% from a year earlier.

"A rise in Chinese PPI has taken year-on-year factory input price growth up to 13.5%," IG analyst Joshua Mahony said. "With U.S. CPI due out later, there's a strong chance we'll see another reminder of how Chinese manufacturers invariably pass some of that cost on to the Western consumer.

Shares on the move: Marks & Spencer Group topped the FTSE 100 risers, up 15% after the retailer reported a swing to first-half pretax profit and raised full-year guidance, but said labor-market and transport issues will weigh on costs.

The guidance was well ahead of already bullish expectations and the upbeat tone bodes well for other sector players, RBC Capital Markets said. M&S is making steady progress in food and cost-cutting measures should help to offset higher costs, it added.

"We think M&S's valuation is reasonable, but not in the bargain basement any more, as it was for much of spring/summer 2020," RBC analyst Richard Chamberlain said.

ITV shares jumped 10.5% after saying it expects to deliver record total advertising revenue this year. Energy giants BP and Royal Dutch Shell rose on higher oil prices while housebuilders also rally.

Shares in Salvatore Ferragamo slide in opening trade Wednesday after the Italian luxury-goods company again failed to pick up the pace of recovery in its third-quarter print. Nine-month revenue remains substantially below the same period of 2019, and while margins are impressively robust, the top line remains Ferragamo's weakness, analysts at Jefferies said.

Specific areas of concern are a lack of momentum in Asia, an unfavorable channel mix and a failure for the core product categories to lead from the front, the bank said.

"We continue to think Ferragamo has a product problem," the bank added, keeping a hold rating and EUR18 target on the stock.

Data in focus: With the German construction industry booming, problems sourcing material supplies are expected to persist until next spring, the Ifo Institute said.

Companies believe supply problems will continue for an average of five months, according to an Ifo survey conducted in October. In the same survey, 38.0% of companies in construction reported disruptions due to delivery delays, while in September the figure was still 36.3%.

"The easing observed in recent months has come to a halt in building construction," Ifo's researcher Felix Leiss said. The building materials industry is energy-intensive and is feeling the effects of sharp price increases, while wholesale prices for building materials also continue to rise, Leiss said.

"Companies in this business are planning to raise construction prices," Leiss said.

U.S. Markets:

Stock futures paused as investors awaited data on consumer prices, amid building concerns over inflationary pressures in the global economy.

Tesla shares gained around 1% in premarket trading. The electric-vehicle maker's shares fell 12% Tuesday, extending Monday's declines after Chief Executive Elon Musk signaled he might sell a big chunk of his stock.

Coinbase Global tumbled over 10% premarket after the cryptocurrency exchange reported earnings late Tuesday that missed analysts' expectations.

Stocks have chartered a rapid course higher in recent weeks, lifted by a strong batch of earnings reports that have bolstered investors' faith in the recovery. Still, signs that inflationary pressures in the global economy are broadening remain investors' primary concern.

All eyes will be on inflation data due Wednesday, which investors will assess for clues on how it could affect Federal Reserve interest-rate decisions. Fed Chair Jerome Powell said last week that inflation-inducing bottlenecks in the global economy have been more persistent than expected.

Stock markets are showing "stubborn resilience" despite the inflation concerns and the prospect of tightening monetary policy, said Aoifinn Devitt, chief investment officer at Moneta Group. "Inflation is very much here and arguably not transitory but markets don't seem to be too concerned about that," she said.

While earnings season has helped lift indexes, investors are still demanding safe-haven assets, she said. "Even when markets are raging people are not giving up on bonds. There is a slight lack of conviction in terms of how long this can last," she said.

Earnings are due Wednesday from Wendy's ahead of the opening bell, while Walt Disney and Beyond Meat are scheduled to post results after markets close.

Investors are also looking to jobless claims data Wednesday, amid a labor shortage that has been another factor fueling inflation. The data is expected to show applications for unemployment benefits at a fresh pandemic low.

Forex:

U.S. data later are likely to show inflation accelerated further in October and this could be positive for the dollar in terms of interest rate rise expectations, Unicredit said.

"However, the effective reaction of the greenback--and its ability to absorb the losses it has suffered since last Friday--is set to depend largely on the reaction of the bond market, as the further decline in the 10-year U.S. yield has so far prevented a further widening of the spread to German 10-year Bund more in favor of the USD," Unicredit analysts said.

A potential escalation of post-Brexit trade tensions over the Northern Ireland protocol could hit sterling, MUFG Bank said. The U.K. has threatened to suspend parts of the Brexit deal for Northern Ireland, which could prompt the EU to scrap the Trade and Cooperation Agreement, MUFG analyst Derek Halpenny said.

That would be a "disaster" for the U.K. and Ireland economies, he said. "This is hardly the backdrop for any further GBP rebound and could well be a catalyst for renewed speculative selling that sees GBP underperformance persist." Brexit commissioner Maros Sefcovic will brief EU ambassadors and members of European Parliament on Wednesday about negotiations with the U.K.

The Norwegian krone's resilience to a larger-than-expected slowdown in Norway's October inflation suggests there is a high level of market conviction that the Norges Bank will stick to its interest rate rise plans, ING said.

"With inflation still likely to press higher again in November and December, it appears unlikely one below-consensus read will dent the Norges Bank hiking plans for December and for 2022," ING analysts said. The annual rate of inflation eased to 3.5% in October from 4.1% in September.

Bonds:

The lingering inflation scare remains the overarching theme in government bond markets, ING's rates strategists said.

In the eurozone, discussion around the European Central Bank's tapering gaining more traction has the potential to rattle sovereign spreads in particular, they added.

ING noted ECB member Klaas Knot's recent questioning of whether higher purchases under the Asset Purchase Programme would be needed after the Pandemic Emergency Purchase Programme ends in 2022.

U.S. inflation data for October due later Wednesday should be neutral for European credit markets, said UniCredit. "All eyes will be on US CPI data, though with our forecast being in line with market consensus, we expect the release to be neutral for European corporate credit investors today," analysts at the bank said.

Economists polled by the WSJ have however predicted a rise of 0.6% in the consumer price index in October, slightly up from an increase of 0.4% in September.

The U.K. Debt Management Office's planned sale of GBP900 million in 0.125% August 2031 index-linked gilts, also known as linkers, should draw demand given investor interest in hedging against high inflation, said RBC Capital Markets.

"With limited supply of linkers for the rest of fiscal year 21/22 and what appears to be a real concern over inflation with investors looking to hedge against such risks, we should see today's event go fine," analysts at the bank said.

While the bond is trading at extremely rich levels on most metrics, "we have seen continued performance of the bond at these levels going into today's auction," they said.

Italian government bond spread tightening could face some headwinds into the year end, even as Italian bonds have a positive flow backdrop, said UniCredit.

"It is already very late in the year and investors may be reluctant to set up directional positions," said Chiara Cremonesi, deputy head of fixed income strategy at the Italian bank.

In addition, central bank communication is a wild card, with investors possibly wanting to wait for more reassurance on how the ECB will conduct asset purchases next year and how strong its commitment to its forward guidance and the policy normalization sequencing is, she said.

These uncertainties could be source of high volatility in eurozone government bond markets in the coming weeks, she said.

Commodities:

Although a hawkish Fed would normally lead to a stronger USD and hence weaker commodity prices, Goldman Sachs said investors shouldn't worry about reduced commodity returns in the current environment.

This is because of the relative scarcity now evident in many commodity markets, including oil, which is likely to support and offset a stronger USD, the investment bank said. Furthermore "against a stagflationary backdrop in Europe and Asia, the USD and oil could strengthen in parallel."