Last checked at 
* European shares hit record high, up 0.4%
* Vonovia to buy Deutsche Wohnen for $22 bln
* Fed reassurances over policy support mood
* Futures point to positive Wall Street open
May 25 - 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
UNWARRANTED UK BANK STOCKS' DEPRESSION (1119 GMT)
A rising yields environment coupled with an improving
economic outlook and strong product markets are supposed to be
boosting UK bank shares, which have been unwarrantedly depressed
relative to their eurozone peers.
"Underlying conditions that have enabled some UK banks to
upgrade their near-term guidance are more broad-based than
recent share price performance might suggest," according to
Berenberg analysts.
"This can support further share price performance for
NatWest and Barclays, in particular," they say.
Rising yields will support margins, but "the benefits are
more broad-based and persistent than banks' recent guidance and
their relative performance might suggest," they add.
A further increase in interest rates and reinvestment yields
on UK banks' structural hedges becoming "materially positive"
beyond 2022 "would provide an additional boost."
Product markets remain "exceptionally strong," with the UK
mortgage market continuing to benefit from solid growth and
attractive pricing.
The chart shows the UK FTSE bank stock index
(blue) and the euro zone bank stock index (green).
(Stefano Rebaudo)
*****
CHICKEN KATSU READ-ACROSS (1015 GMT)
How many Japanese curry dishes does it take to reassure
investors on the outlook of Britain's leisure industry?
Well quite a lot it seems!
Restaurant Group is up a modest 1.4% after it reported sales
at about 130 Wagamama restaurants, famous notably for the
Chicken Katsu, and 75 pubs touched roughly 85% of the levels
seen in 2019 in the five weeks to May 16.
"This ought to also be good news for UK plc and a recovery
in GDP in Q2 and Q3", commented Neil Wilson at Markets.com while
at Citi, the tone was also quite upbeat.
"Overall this strong bounce back suggests that there is very
strong pent up demand", the bank's analysts wrote before adding
a word of caution.
"We expect investors will remain cautious about simply
extrapolating the recent performance through the rest of the
year", they said, pointing out to pandemic risks, customers'
appetite waning gradually and the coming VAT hike.
For Chris Beauchamp at IG, investors already knew that
business was recovering and, because much of the good news is
arguably priced in, will be more concerned about what lies ahead
in terms of staff shortages, rising food prices and higher
prices for foodstuffs.
"From here the outlook is rosy but broadly predictable, and
it will be up to management to provide a real surprise if the
shares are to see further gains", he commented.
This of course, could also safely be said of European
equities for which many strategists don't see much upside now
that the 2021 EPS and macro bounce has been pencilled in.
On a brighter note, Oliver Rakau, Chief German Economist at
Oxford Economics noted that Germany's ifo index showed that
"hospitality firms' optimism exploded on an easing in
restrictions".
"With consumers sitting on a mountain of excess savings we
expect private consumption to skyrocket in Q2", he added in what
should be music to the ears of investors hoping the best is yet
to come.
(Julien Ponthus)
*****
"TOO EARLY TO GIVE UP ON THE RECOVERY TRADE" (0846 GMT)
The STOXX has nudged up to a new peak this morning but the
bigger picture is that European equities have been moving
broadly sideways for around a month, indicating doubts over
whether the recovery can meaningful lift equities any further.
The fresh record high for the pan-regional index is surely a
good sign but the jury is still out on whether equities in
Europe and elsewhere can continue to benefit from it.
Citi's Robert Buckland has weighed in and after looking at
how markets perform in years one and two of the cycle he
concludes investors should stick with the recovery trade.
"We find a strong global EPS rebound (+36% expected in 2021)
is usually enough to counter investor fears about rising rates.
It’s in year two (i.e., 2022) when EPS momentum fades and
markets struggle. Similarly, cyclical stocks outperform in year
one of the EPS cycle but fade in year two," he says.
"We would buy into any short-term dip in the markets and
cyclical stocks in particular. It's too early to give up on the
recovery trade," he says.
(Danilo Masoni)
*****
STOXX HITS ALL-TIME HIGHS, TECH AND REAL ESTATE SHINE (0733
GMT)
European stocks hit a new all-time high, with real estate
shares and interest-rate sensitive tech stocks leading gains.
Comments by the Fed and the ECB reiterating their support
for an accommodative monetary policy drove bond yields lower and
propped up risk-sentiment.
A $22 billion takeover bid in the real estate industry
boosted the whole sector, with shares in Deutsche Wohnen
rising more than 15% after Vonovia's bid.
Europe's STOXX 600 index is up 0.4%, with real estate stock
index up 1.5%, and tech shares up 1.2% after
its peers jumped on Wall Street overnight.
Basic materials stock index is one of the worst
sectoral performers, down 0.1% after Beijing vowed to maintain
stability in the country's commodities markets. China's
regulators pledged they would strengthen inspections while
cracking down irregularities and malicious speculation.
Shares in Amigo down 48% after a court had refused
to sanction a proposed rescue plan to manage its enormous
backlog of redress claims.
(Stefano Rebaudo)
*****
TIME OUT FROM INFLATION JITTERS (0658 GMT)
World markets may be taking a breather from their recent
unease over rising inflation. Asian shares rose to a two-week
high, while stock futures point to a higher open in Europe and
the United States after Wall Street closed higher on Monday.
Germany's monthly Ifo survey at 0800 GMT will offer some
insight into how business sentiment is faring in May.
A speech by European Central Bank chief economist Philip
Lane will also be scrutinised for clues on what the bank might
do at its June meeting even if ECB officials -- including its
chief Christine Lagarde -- have been reassuring markets that
policy will remain supportive.
Similar comments across the Atlantic where James Bullard,
president of the St. Louis Federal Reserve, said on Monday it
was not time to talk about changing the parameters of monetary
policy while the pandemic rages. Other Fed officials Raphael
Bostic and Lael Brainard also had soothing words on inflation.
That's holding German Bund yields below last week's two-year
highs, U.S. Treasury yields are moving sideways and the dollar
index drifting down to 89.76, not far off its lowest
levels since January.
China's offshore yuan strengthened past 6.4 per dollar for
the first time since June 2018.
Also on currencies, the Turkish lira edged lower
after one of four central bank deputy governors was shown the
door, just two months after President Tayyip Erdogan fired the
bank's governor.
Finally, the restful mood may be wafting over crypto
currencies too, helping bitcoin hold around $38,600.
Key developments that should provide more direction to
markets on Tuesday:
- Europe's largest residential property group Vonovia SE
is to take over German rival Deutsche Wohnen
for about 18 billion euros ($22 billion).
- Singapore's GDP grew 1.3% y/y in Q1, above advance
estimate of 0.2%; govt strikes cautious note about outlook.
- UK borrowing shows first annual fall since start of
pandemic.
- Emerging markets: central bank meetings in Indonesia and
Hungary
- ECB chief economist Philip Lane speaks 1400 GMT
- Fed speakers: Chicago Fed’s Charles Evans, Richmond Feds
Thomas Barkin, Fed Vice Chair for Supervision Randal Quarles
- U.S. consumer confidence/new home sales
- U.S. auctions: 2-year notes
- U.S. earnings: Urban Outfitters, Nordstrom
(Dhara Ranasinghe)
*****
EUROPE IN THE BLACK ON FADING TAPERING FEARS (0533 GMT)
European stock futures are slightly higher as fading fears
about a bond buying tapering by central banks boosted Asian
equities and Wall Street overnight.
U.S. bond yields fell to two weeks lows on Monday after the
Fed reiterated its support to keep monetary policy accommodative
for some time, but some analysts still fear a yield rise coupled
with a stock correction.
Today's data calendar is pretty light, with Germany's Ifo
Business Climate index in focus, while all eyes will be on the
release of U.S. personal consumption data on Thursday, the Fed's
preferred inflation measure.
(Stefano Rebaudo)
*****
