LIVE MARKETS-Post-Merkel German stress?

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POST-MERKEL GERMAN STRESS? (1313 GMT)
It's probably fair to say that another UK national lockdown
and the storming of the U.S. Capitol wasn't exactly what
investors had in mind for the first week of trading in 2021.
Fair then to add that while it's widely expected that in
Germany, Merkel's center-right CDU party will remain in power
(alone or in a coalition) after the Bundeskanzlerin leaves in
the fall, there could some political surprises.
In short, who replaces Merkel as leader, is in focus for
markets, with the spotlight turning to the CDU leadership
election on January 15-16. Whoever wins that race will be a
strong favourite for the Chancellorship.
Even if "Mutti's" successor does come from her own party,
there are multiple possibilities on who that could be and how it
will affect the euro zone.
Despite her country's historic love affair with fiscal
conservatism, Merkel has agreed with the European Union's
strategy to spend its way out of the coronavirus crisis and move
towards debt mutualization through the bloc's recovery fund.
"How aggressively will a new Chancellor push back on the
drive to greater EU solidarity?", is one key question investors
should be asking, NatWest analysts said in a note published
today.
As it stands, markets are inclined to believe that one
option, Friedrich Merz, an erstwhile rival of the Chancellor
could prove challenging for Germany's partners.
"Merz may concern some markets, not least in the periphery,
but possibly even the euro", according to NatWest, explaining
that Merz could be tempted to favour "market discipline versus
solidarity with the EU".
Another potential successor to Merkel, such as like premier
of North Rhine-Westphalia and foreign policy expert Norbert
Roettgen, would be more on the doves' side.
"Laschet and Röttgen may be more positive periphery, but
negative for core rates", they caution, referring to Armin
Laschet, one frontrunner in the race to succeed Merkel.
Political risk aside, with massive ECB bond buying in place,
it's fair to say there ain't much stress around in the euro zone
for now.
Here's the Bund yield during Merkel's tenure:



(Julien Ponthus and Dhara Ranasinghe)
*****




ONLY 6 EUROPEAN STOCKS ARE WORTH MORE THAN ELON MUSK (1050
GMT)
The latest estimate of Elon Musk's stratospheric wealth
overtaking Amazon's Jeff Bezos is likely to incite
(a popular verb these days) some rather harsh comparisons with
the valuation of European stocks.
Because Musk's net worth is largely linked to Tesla's market
capitalisation through his 20% ownership and further options in
the EV maker, one might wonder if achieving such wealth would be
possible via similar holdings in a European listed company.
Without falling into the trap of unnecessarily bashing
European stocks, the answer, in a nutshell, is no.
Taking into account the recent rise in Tesla shares, Musk is
believed to be worth $188.5 billion according to Bloomberg.
Only 6 European stocks have a market capitalisation that on
their own beats the value of Musk's fortune.

Top 7 European companies by market Market cap (BLN $)
cap (rounded figures)
Nestle 335
LVMH 321
Roche 293
Novartis 231
L'Oreal 212
ASML 209
BHP GROUP 170
From this table, one can see that even a 50% stake in
Switzerland's food giant Nestle, $167.5 billion would
not be sufficient to outweigh Elon Musk.
That's because Tesla is worth $773 billion, way more than
Nestle and LVMH combined ($656 billion).
This only highlights once more how Wall Street's tech giants
have dwarfed blue chips from the old continent during the last
decade.
The entire pan-European STOXX 600 is currently
valued at 10.9 trillion dollars, which takes only the top 14
companies in the S&P 500 to match.

(Julien Ponthus)
*****




SODEXHO SETS TABLE FOR TECH BREAKFAST, COURTESY OF SAMSUNG
(0837 GMT)
There's quite a healthy appetite for stocks this morning in
Europe with the pan-European STOXX 600 up 0.7% and a vast
majority of sectors and regional bourses in the black.
While investors are hungry this morning, their breakfast
preference clearly goes for tech stocks and particularly the
chip sector after Samsung Electronics said coronavirus pandemic
driven remote working and TV-watching fuelled sales of chips and
display panels.
Take a look below at the action in the European tech segment
(+2.7%), it's worth a look, particularly with Infineon, STMicro
and AMS up 5.7%, 4.2% and 2.9% respectively.

But there's more to a breakfast than the food, it's also how
it's presented and on that front, of the world's biggest canteen
operator Sodexho did a good job in terms of setting the table.
The French group is rising 5.7% at the moment, the best
performance across the STOXX 600 after upgrading its outlook.
On the downside, banks are underperforming, roughly flat and
not enjoying much of the reflation trade frenzy. Then again,
they've gained already over 6% since the start of 2021.
So far, the STOXX 600 is up about 3% this week, which would
be the best weekly gain since the beginning of November:


(Julien Ponthus)
*****




RIDING ON THE REFLATION TRAIN (0802 GMT)
Markets have firmly climbed on the reflation trade bandwagon
with the benchmark 10-year U.S. Treasury yield popping to a new
10-month high at 1.10%. The widely watched spread between the
10- and 2-year yield widened to a July 2017 high at 97 bps.
Investors are focusing on the prospects of more stimulus
from the incoming Biden administration after the Democrats won
control of the Senate this week.
While rising bond yields translate directly into higher
borrowing costs potentially hurting a global economy struggling
to shake off the ravages of the coronavirus pandemic, stock
markets are conveniently ignoring that fact for now.
World stocks are poised to close in the black in the first
week of 2021. Benchmark U.S. indices closed more than 1% up
apiece overnight while European stock futures are signalling a
higher start.
More evidence of the damage to the global economy will be
out later today with monthly jobs data expected to show the U.S.
economy likely created the fewest jobs in seven months.
The secular rise in U.S. Treasury yields across the board
reverberated across broader markets, spurring traders to unwind
their long bets on the euro with the euro/dollar nursing losses
after a 0.5% drop overnight. Even the Chinese yuan, which has
been on a rampage this week, steadied.
Elsewhere, speculator’s dream, Bitcoin took a breather after
smashing through $40,000 for the first time. The world’s most
popular digital currency has doubled its value in less than a
month after crossing the $20,000 milestone on Dec. 16.


(Saikat Chatterjee)
*****



BITCOIN OR REFLATION TRADE? (0737 GMT)
The storming of the Capitol exposed to the world how divided
the U.S. society is and depending on whether one believes the
country can be healed, comes different investment conclusions,
writes Rabobank strategist Michael Every this morning.
"Either buy into the reflation trade on the presumption that
the new administration will at least attempt to use economic
stimulus to bridge the political divide; or expect the worse and
just buy Bitcoin", he argues in a somewhat provocative morning
note.
So far in 2021, both options, reflation and cryptomania,
seem to be walking hand and hand amid the bulls.
Bitcoin has reached a record $40,000 overnight and the U.S.
10 year Treasury yield has shot above 1.08%, to its highest
since the COVID-19 crash in March.
So far this year, as you can see below, both are doing quite
well:

(Julien Ponthus)
*****





EUROPE SHINES IN 2021'S FIRST WEEK OF TRADING (0636 GMT)
European shares are seen opening well into positive
territory this morning and set to outperform their U.S. rivals
for the first week of trading of 2021.
The pan-European STOXX 600 is currently on course for weekly
gains of about 2.4% versus 1.3% for the S&P 500.
It must be said however that the latter is enjoying fresh
record highs while Europe has still some way to go to reclaim
the highs last touched in February 2020.
Talking about new records, Asian stocks have rose to new
highs overnight with Japan's Nikkei hitting a three-decade peak.
Despite the coronavirus pandemic and the U.S. political
crisis, investors are still betting that 2021 will be a year of
economic rebound.

(Julien Ponthus)
*****