* European shares up 0.2%
* Utilities leads sectoral gainers
* Wall Street shut for Thanksgiving
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EM CURRENCIES VS THE DOLLAR: IT'S DIFFERENT THIS TIME?(1259
The dollar is close to its highest since July 2020 against
the euro after the U.S. Federal Reserve meeting minutes, and its
run is probably not over yet.
But this doesn’t seem to be the case for emerging market
currencies, even if they usually are considered more vulnerable
in times of U.S. monetary policy normalization.
They apparently learned their lessons from the 2013 ‘taper
tantrum’, when traders dumped Treasuries ahead of the Fed,
reducing bond purchases, triggering a jump in U.S. yields.
In 2013 it was feared that “rising U.S. interest rates would
plunge many emerging markets into a deep crisis due to a flight
of capital, causing the respective currencies to plummet,”
according to Commerzbank analysts.
“The central banks of the currencies that came under
particularly heavy pressure in 2013 also seem to have learned
from the episode,” they say.
Most of them reacted very early to the current inflation
risks and have already raised their interest rates, in some
cases substantially, they add.
“The early start of a normalization of monetary policy in
the emerging markets is currently a great support for the
It’s different for the Turkish lira, which is admittedly a
FOMC meeting minutes reinforced expectations that the
Federal Reserve will raise rates sooner than other major central
The chart below shows the emerging market currency index
holding not far from its end-June highs, while
the euro/dollar falls.
SHOW ME THE MONEY (1141 GMT)
Stocks of miners enjoyed a long rally up to mid-2021 and
suffered only a mild correction since then. But now companies
might need to take further steps to lure investors as the
outlook about commodity prices becomes increasingly uncertain.
“We argue that mining companies could strengthen the
credentials of their investment cases and lock in shareholder
returns by stepping up special dividends and buybacks during the
upcoming results season,” Morgan Stanley analysts say.
Obviously, some are better placed than others, given
superior cash generation prospects.
Morgan Stanley analysts say Glencore remains their
top pick among diversified miners, given its capital returns
prospects. Anglo American appears to be the least cash
generative during H2 but this may be due to transitory factors.
Glencore's strategy will be under the scanner during the
company’s investor day on December 2.
TURKISH BANKS: CAP RAISES ON THE HORIZON?
The Turkish lira is licking its wounds following this week's
historic drop to records lows but despite the apparent calm,
local banks will face difficulties.
Credit Suisse has taken a fresh look at the sector and even
though it says all banks under its coverage "appear comfortable"
on the liquidity front, it expects some banks to need capital
injections or forbearance measures for capital ratios.
"The regulator is likely to redefine the solvency related
forbearances in a more favourable way, in case the depreciation
pressure on TL continues. We no longer expect the regulator to
allow dividend distribution from 2021 earnings," writes Ates
Buldur, analyst at the Swiss investment bank.
"For state banks, another round of capital injection may be
considered as well. We do not rule out the possibility of
well-capitalized private banks carrying out rights issues to
maintain sizeable buffers," he adds in a note.
Every 10% depreciation in the lira has a negative impact on
the banks' capital ranging for 25 to 80 basis points, according
to Credit Suisse calculations based on management guidance.
In the snapshot you can see how Turkish banking stocks have
underperformed the MSCI World Bank index.
THE BULL MARKET IS NOT YET OVER (0949 GMT)
Despite European stocks are on track for their
second-best annual returns since the 2008 financial crisis after
year-to-date gains of more than 20%, analysts are not calling
time out yet on the rally.
Joining fellow European market bulls from Morgan Stanley and
BNP Paribas, strategists from Societe Generale are also
optimistic on the European markets outlook for next year.
They predict a 9% upside to European stocks from current
levels by end-2022, mainly driven by solid earnings growth in
the backdrop of a supportive macro environment with cost
inflation likely to peak soon.
Their top calls: Long European Green Deal basket, Long
banks, Long European Capex, Long European buy backs index.
TECH, FOOD, LUXURY AND BIG PHARMA TO THE RESCUE (0850 GMT)
A bounce in tech and heavyweight food, healthcare and luxury
stocks is helping the STOXX 600 bounce with somewhat
more conviction today after yesterday's volatile session.
Investors pondering risks associated with a resurgence of
COVID cases in Europe and policy tightening in the U.S. are
opting this morning for a defensive tilt, while the cyclical
banks and oil stocks are seeing pressure to the downside.
The pan-European equity benchmark was last up 0.5% with
shares such as chip firm ASML, drugmakers Roche and Astrazeneca,
LVMH, and food giant Nestle all ranking among the top positive
weights to the index, as you see in the snapshot.
Well-received results from cognac maker Remy Cointreau and
radiation therapy equipment maker Elekta also provided support,
being their shares up 10% and 7% respectively.
AMERICANS CAN GIVE THANKS (0812 GMT)
It's Thanksgiving and the United States indeed has cause to
celebrate. Data released on the eve of the holiday showed robust
consumer spending, jobless claims at the lowest levels since
1969 and a 4.1% monthly rise in the core PCE inflation index.
The figures reinforced the picture of an economy speeding
away from the rest of the world still struggling with COVID-19
fallout. So much so that anxiety about rising inflation has
taken root at the U.S. Fed, minutes from its last meeting showed
also on Wednesday.
It's a piquant contrast with Europe, where data just showed
inflation and surging coronavirus infections hitting German
consumer morale which is back at June lows. Japan's
economy meanwhile contracted 3% in the third quarter -- a
contrast with the U.S. 2%-plus third quarter expansion
Stock markets in Asia and Europe are firmer riding on the
coat-tails of Wall Street which ended higher on Wednesday. But
one result of the U.S. data beats is a dollar in "beast mode" in
the words of the Pepperstone brokerage in Australia. This
morning it's just off 17-month highs versus the euro and
five-year highs to the yen .
It's bad news for emerging markets where many countries are
seeing eye-popping inflation figures, potentially forcing more
interest rate rises. South Korea on Thursday raised interest
rates for the second time this year and further upped inflation
Turkey of course is the outlier. President Erdogan's
steadfast refusal to countenance higher interest rates has
tipped his country into crisis. With the lira down 26% this
month versus the dollar, expect the usual references to
Thanksgiving turkeys in news headlines and bank research notes
Key developments that should provide more direction to
markets on Thursday:
-German coalition eyes return to debt limits from 2023, open
to EU reforms
-Swedish PM resigns on first day in job, hopes for swift
-Sweden Riksbank rate decision
-ECB speakers: ECB President Christine Lagarde; ECB board
members Frank Elderson, Philip Lane, Edouard Fernandez-Bollo
-Emerging markets: South Korea raises rates; Sri Lanka on
-Remy Cointreau raises annual outlook after H1 profit beat
; Italy to discuss KKR's move on TIM after binding
EUROPE: STEADYING ABOVE THREE WEEK LOWS (0745 GMT)
After edging up just slightly yesterday following a volatile
session, European shares look set for a second day of marginal
gains that should help the STOXX regional benchmark to
steady above three-week lows.
Investors are trying to set aside concerns over new
restrictions in Europe, even as Germany had record COVID cases,
and look past Fed minutes showing more officials are open to
speeding up bond-buying taper and move faster to raise rates.
Wall Street will be shut for Thanksgiving, likely curbing
activity across the board, but its positive close overnight and
gains in Asian tech stocks bode well for risk sentiment here in
European stock futures were last up between 0.1% and 0.3%.