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Nov 1 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
CHINA: IS THE WORST BEHIND US? (1225 GMT)
While China's indebted property sector and the slowdown in
its economy continue to worry investors, some analysts believe
the worst might actually be behind us when it comes to the
prospects of the world's second economy.
“China growth deceleration is by now in later stages, with
an improvement ahead, while Chinese credit concerns are expected
to stay manageable,” JP Morgan analysts say.
But it’s not just the economy that is expected to do better.
“The worst may be over for China equities amid increasing
signs that the Chinese government is trying to strike a balance
between stabilizing growth and pushing ahead with structural
reforms,” Mark Haefele, Chief Investment Officer, UBS Global
Wealth Management, says.
“Near-term market volatility may remain high, but we expect
the MSCI China to deliver mid-single-digit returns for the rest
of 2021 and around 6–9% over the next six months, similar to
Asia ex-Japan equities,” he adds.
China's October factory activity grew fastest in four months
as new orders rose and disruptive power shortages started to
ease, but input costs remained high.
The chart shows the MSCI China index underperforming equity
markets since February.
(Stefano Rebaudo)
*****
COMING SOON? "PAST PEAK RATE HIKE FEVER" (1101 GMT)
With Europe's STOXX 600 surfing on new record highs and
upbeat Wall street futures, it's pretty safe to assume investors
currently feel quite relaxed about how this week will pan out on
the monetary policy front.
That's quite a stark contrast with last week on the fixed
income front as we wait for the Australian, U.S. and English
central banks to enlighten investors about how fast rates are
likely to rise and how swiftly monetary stimulus cut.
At Natwest, John Briggs, global head of desk strategy
believes the worst may be behind us in terms of market angst.
"It may end up being a dovish week for the markets if only
because market expectations have gone too far for where the
world is right now, and central banks may not deliver the
markets’ increasingly high hurdles for hawkishness", he wrote
this morning.
"Yes I’m going on a limb a little bit, but I think we may
come out of next week past peak yield volatility, or at least,
past peak rate hike fever", he added.
While markets are pricing a BoE hike on Thursday, Briggs and
other analysts such as at RBC, believe the BoE could wait till
December to deliver its first rate hike.
(Julien Ponthus)
*****
ECB: IT’S WHAT SHE DIDN’T SAY (1033 GMT)
A jump in bond yields that started after the ECB policy
meeting last week seems to be easing a bit, while investors
continue to digest the speech from president Christine Lagarde.
But it appears that it wasn’t what Lagarde said, but what
she didn’t say that is currently weighing on bond prices.
“We still did not get details on what replaces PEPP, but the
markets may have pared back expectations of what the new version
of Asset Purchase Programme (APP) will look like,” MUFG Bank
analysts say in a research note.
The markets seem to have linked Lagarde’s slight shift in
the inflation view “to the more firm view that the Pandemic
Emergency Purchase Programme (PEPP) would end on schedule in
March,” they add.
Unicredit analysts flag that “to keep financing conditions
broadly unchanged, the ECB will need to buy at least EUR 700bn
worth of assets in 2022,” meaning it should double the current
APP to 500 billion euros next year.
“Given the mood at the ECB these days, a doubling of the APP
to accompany the end of PEPP is just not a realistic prospect,”
Unicredit analysts say.
(Stefano Rebaudo)
*****
STOXX HITS FRESH ALL-TIME HIGH (0851 GMT)
European stocks are well in the black, hitting new all-time
highs, as investors shrug off worries about central banks
reducing their monetary stimulus.
According to JP Morgan analysts, equities are set “to
continue climbing the ‘wall of worry, it remains premature to
position for the central banks' policy mistake.”
The STOXX 600 index is up 0.8%.
A jump in bond yields seems to be easing today, ahead of
some major central banks meetings this week, with the Fed
expected to announce its tapering plans.
Shares in Ryanair are up 1% after an early fall as
the company reports the first quarterly profit for 2019, but it
confirmed a loss forecast for the entire year.
Barclays stocks are down 1.2% after the bank said
that chief executive Jes Staley is to stand down following
British regulators' investigations into his ties with convicted
sex offender Jeffrey Epstein.
(Stefano Rebaudo)
*****
A WEEK OF CENTRAL BANKS (0714 GMT)
It's hard to believe that just a month or so back the first
Fed rate hike was not expected until Jan 2023. Goldman Sachs is
among those to now predict a hike next July, bringing forecasts
forward a whole year after the U.S. core PCE index -- the Fed's
preferred inflation measure - came in at 4.4% annualised.
A euro zone rate rise in July? Highly unlikely, even if
headline inflation is at 4.1%, nonetheless it's fully priced.
All of which makes it an scintillating week for central bank
watchers, with the Fed likely announcing a taper, the Bank of
England an interest rate rise, Norway signalling its second rate
hike of the year. The most interesting might be the Reserve Bank
of Australia which could revise its guidance after last week
letting its 3-year bond yield bust past the targeted 0.1%.
Bond markets are calmer this morning -- the Aussie yield is
down more than 22 bps, after rising 90 bps last week.
Stock markets got off to a good start, with Japan's Nikkei
rising 2.3% after an unexpectedly comfortable election victory
for Prime minister Fumio Kishida. European shares
are opening higher and Wall Street futures are pointing north.
Company results are cheerful too, with analysts upping
earnings expectations - among others, Ryanair reported its first
quarterly profit since before COVID-19 and jewellery firm
Pandora lifted sales and profit margin outlook for the year.
There is no shortage of growth headwinds though. After last
week's below-forecast U.S. Q3 GDP, another reminder from China
on Monday, with factory activity shrinking for the second month,
while German retail sales dropped 0.9% year/year versus
forecasts of a 1.8% rise.
Finally an interesting nugget from BofA which points out
that mentions of supply chain issues during Q3 earnings calls
were up 412% year-on-year.
Key developments that should provide more direction to markets
on Monday:
-Biden to tout 'largest investment' in climate in Glasgow
-Asian factories shake off lockdown blues, now face supply
headaches
- China knocked oil prices lower with forecast it would release
gasoline and diesel reserves
- Britain warned France on Monday to back down in a fish row
-International Energy Forum conference starts – 2 days
(Sujata Rao)
EUROPE IN THE BLACK (0732 GMT)
European equities are set to open higher as the bond market
seems to stabilize, while U.S. stocks continued to show a
bullish trend.
With much of Europe on holiday today and ahead of central
bank policy meetings in the U.S., UK, and Australia this week,
risk sentiment is under check.
Weak Chinese economic data weighed on Asian markets while
Japanese stocks surged after the outcome of the elections
triggered expectations of more fiscal stimulus.
In late trade on Friday, Wall Street shook off early
declines to close higher despite the drop of Apple and Amazon
shares after results.
(Stefano Rebaudo)
*****
