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

• US futures rose, suggesting earnings optimism was outweighing caution ahead of a first read of third-quarter economic growth.
• Tech stocks have soared even as inflation threatens to end the ultra-loose monetary policy that has fueled the rally.

US stock futures rose Thursday, drawing strength from upbeat earnings in the technology sector in particular, although some caution emerged ahead of a key read of US economic growth in light of rising inflation.

Futures on the S&P 500, Dow Jones and Nasdaq 100 rose by between 0.2% to 0.5% in morning trade in Europe, pointing to a higher start for the stock benchmarks later. However, the MSCI All-World index of global shares fell 0.1%, reflecting losses across Asia and Europe.

Earnings season so far has come in strong for the types of sectors that normally suffer in an inflationary environment, such as tech stocks. Shares in the likes of Microsoft, Apple, Facebook and Tesla have soared to new highs and fueled a wave of investor optimism.

Several executives - from social media platform Twitter, to German carmaker Volkswagen, to US industrial conglomerate GE - have fretted about the impact to their businesses from kinks in the global supply chain. They are also worried about the inflationary effects of a labor shortage in key sectors and a steep rise in input costs.

"Fears that supply chain issues may last longer than previously expected nudged the S&P and Wall Street into negative territory with this weakness rolling into the Asian session. The Nasdaq fared marginally better after Google's parent company Alphabet and Microsoft both released record-breaking results," broker IG said in a note.

But short-term US government bond yields have spiked by the most in almost 12 years in October. Fixed-income investors have priced in a growing chance the Federal Reserve will wind down its asset-purchase program faster, in the face of flaring inflation.

The Bank of Canada surprised market-watchers overnight by suddenly ending its asset purchases and with a surprise signal it may raise interest rates sooner than previously thought. Canadian government bonds sold off following the announcement.

Investors will get a first read of third-quarter US economic growth later Thursday. Gross domestic product is expected to have grown by 2.7% in the three months to September. That would be the slowest quarter-on-quarter pace since a record 31.2% drop in the second quarter of 2020.

"GDP growth likely slowed to just 2.75%, constrained by temporarily stalled consumption," Ian Shepherdson, chief economist at Pantheon Economics, said. "If growth is far from the consensus, 2.6%, look first at the inventory component, which is a wild card."

CMC Markets chief markets strategist, Michael Hewson, said in a daily note that if third-quarter GDP were weaker than expected, this would manifest itself in the personal consumption component, which was resilient throughout the first half of the year.

"If we see a particularly weak print then it undermines the recovery somewhat, although we doubt it will prevent the Fed from announcing tapering at their next meeting," City Index analyst Matt Simpson said.

European stock markets were mixed. The Stoxx 600 was up 0.1%, Frankfurt's DAX was down 0.1%, and London's FTSE 100 lost 0.3%. Losses across the oil and gas, and basic resources sectors were offset by gains in tech and media stocks. The MSCI Asia ex-Japan index dropped 0.3% on the day.

The European Central Bank meets later to discuss monetary policy, but is widely expected to leave eurozone rates unchanged.

With inflation concerns starting to bite, gold was among the better performing commodities Thursday.

Gold can act as a hedge against inflation, although rising yields can dampen its appeal. However, the price has risen by 2.6% in October so far, for its strongest monthly gain since July. It was last up 0.2% at $1,803 an ounce.