Last checked at 
* European Stoxx index flat
* Banks and miners lead gains
* T&L worst sectoral performers falling over 1%
* Investors await ECB meeting, U.S. inflation
June 10 - 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
ECB: NOT MUCH ACTION SO FAR! (1207 GMT)
Many were expecting the ECB policy meeting to be some kind
of a boring sideshow to the much awaited U.S. inflation data and
it seems that so far they were right.
The STOXX 600 and European banks started to
slightly rise just head of the announcement but after a few
minutes they gave up their gains and went back to roughly where
they were.
That being said, maybe Lagarde's presser will surprise us
but so far, it seems U.S. inflation in half an hour is more
likely to provide some market price action.
On the chart above is Europe's banking index and below the
STOXX 600 soon before and after the ECB statement:
(Julien Ponthus)
*****
ECB/U.S. INFLATION COMBO: THE CALM BEFORE THE STORM? (1054
GMT)
Within less than a couple of hours, we'll have at least some
sort of visibility of what to expect in terms of inflation and
yields in the coming weeks.
The ECB is widely expected to stand its ground and the
Reuters poll puts headline inflation at 4.7% from 4.2% in April.
As a senior equities strategist just told us, with little
expected from Frankfurt, the U.S. inflation is really what
investors are focusing on.
Ipek Ozkardeskaya at Swissquote believes stronger than
expected data on that front could "trigger a certain sell-off
across the equity space" even if the consensus is that today's
figures are likely "the peak of the actual rising inflation
cycle."
But in the grand scheme of things, many believe it's still
too early to get a sense of whether the inflation genie is
really out of the battle.
Or to put in another way, whether inflationistas have been
right all along.
"I suspect that neither side will admit defeat if the number
goes against them as it’s likely too early to see a definitive
trend", wrote Jim Reid at Deutsche Bank this morning.
As he says in this cycle, inflationists have won round 1,
the Fed managed to pull off a draw in round 2 and we're just
about to start round three.
Just having a look at the U.S. 10-year yields, it also feels
like the market is quite convinced this is not the time to fight
the Fed.
Paul Donovan at UBS WM points out that "markets seem content
to trust economists and central bankers who view this as a
temporary spike".
(Julien Ponthus)
******
A CLOSER LOOK AT EQUITY SECTORS (1028 GMT)
Central banks' possible tapering and inflation developments
will be under the spotlight, but the question is what equity
sectors are worth betting on while the Fed makes up its mind.
According to Credit Suisse regional and sector scorecard,
it's going to be always the same story, with financials and
basic materials still top of the list.
Let's see that in detail.
Construction materials remain top (its biggest overweight)
with miners rising 1 place to 2nd (small overweight).
Financials remain close to the top with banks (a clear
overweight) and insurers at 5th and 4th. Closer to the bottom,
consumer durables (luxury) at 19th (underweight).
In terms of valuation relative to historical data, insurers,
which have been sidelined recently as they are not so sensitive
to reflation trade, are 4th, which means among the cheapest.
Miners are 6th and construction materials 8th. Autos --
which were today at the opening under renewed selling pressure
on expectations that supply bottlenecks are here to stay -- are
also not particularly cheap as they are 9th. Banks, after their
multiple months' rally, are 11th.
Credit Suisse scorecard looks at valuation, earnings
momentum, price momentum, positioning and macro sensitivities.
It influences its strategy but does not necessarily represent an
investment recommendation.
(Stefano Rebaudo)
*****
SIDELINED INSURER STOCKS (0858 GMT)
Something happened in mid-April this year when bank stocks
continued their rally while insurers started underperforming
European equities.
As Barclays analysts put it, the main reason is that
investors seek earnings with a high gearing to macro recovery as
the reflation trade is in total swing.
But they think market concerns about the industry are
exaggerated and that current weakness is a “buying opportunity.”
Barclays sees appealing long-term investment opportunities
and confirms its key picks: Zurich, Axa,
Munich Re and Beazley.
But let’s see why the sector has decoupled from fundamentals
year to date after being left on the sidelines.
The current reflation trade scenario seems to be the
“perfect recipe” for a prolonged underperformance of stocks in
insurers, as their earnings are “stable, highly visible and move
at a glacial pace,” Barclays analysts say.
Not to mention “a decade long consensual overweight
insurance and underweight banks market positioning within the
European financials.”
Just temporary inflationary pressures could end up eating
“into short-term margin expansion from price hardening of the
past 18-24 months.”
Last but not least, the Property and Casualty reinsurance
trade is better to remain on hold as “we head into an active
hurricane season.”
(Stefano Rebaudo)
*****
TECH STOCKS UP, AUTOMAKERS DOWN (0738 GMT)
European equities are hovering around yesterday's levels
with tech among the best sectoral performers after U.S.
borrowing costs hit their lowest since May.
Investors will be on hold ahead of the ECB policy meeting
and of U.S. inflation data which is expected to give more clues
about when the Fed will discuss tapering its dovish measures.
U.S. 10-year Treasury yield fell below 1.5% overnight with
investor positioning for today's data.
According to Deutsche Bank economists, U.S. April CPI data,
which marked the fastest inflation seen since the financial
crisis, was temporary as it was due to supply/demand imbalances.
Analysts expect the ECB to confirm its pace of bond buying
and not to mention a possible tapering.
The Stoxx 600 index is flat with automaker stocks
under renewed selling pressure on concerns about supply
chain bottlenecks; oil and gas stock index is down on an
oil prices fall.
Shares in Volkswagen are down 1.6% after the
company said it expects a shortage in semiconductor supply to
ease in the third quarter but sees the bottlenecks continuing in
the long term.
BT shares are up 1%, after Altice took a 12% stake in
the company, becoming its largest shareholder.
(Stefano Rebaudo)
*****
U.S. CPI, ECB DAY, SAY NO MORE (0656 GMT)
The recent calm on financial markets will be put to the test
on Thursday, with the release of U.S. inflation numbers and a
meeting of the European Central Bank.
The CPI data for May is probably one of the most significant
inflation readings in recent years, possibly showing whether the
pick-up in prices is temporary or the start of something more
sustained.
It could well have implications for when the Federal Reserve
decides to start unwinding -- or tapering - its bond-buying
stimulus.
Economists polled by Reuters forecast U.S. headline
inflation rose 4.7% in May year-on-year, from 4.2% in April.
A stronger number could end the upbeat tone in U.S. Treasury
markets, where ebbing inflation fears have pushed yields below
1.5%, the lowest in a month. Breakeven rates, essentially where
markets see future inflation, have also fallen back sharply.
European borrowing costs have fallen too in their wake but
they face their own test now in the shape of the ECB meeting.
The bank is all but certain to maintain a generous flow of
stimulus to prevent higher borrowing costs from smothering the
nascent economic recovery. Still, any signs the ECB is mulling
dialling back the pace of emergency bond buys could renew upward
pressure on yields.
Finally, it's the eve of the G7 heads-of-state meeting and
U.S. President Joe Biden is due to meet British Prime Minister
Boris Johnson later on Thursday; some expect Biden to wade in
with a warning on the Brexit front amid a brewing EU-UK row over
Northern Ireland .
So ahead of those events, world stocks are treading water
and the dollar is near five-month lows. Traders may be marking
time by watching more "meme" stocks shenanigans unfold after a
fresh set of small companies saw share surges on Wednesday.
Key developments that should provide more direction to
markets on Thursday:
- ECB decision at 1145 GMT, news conference at 1230 GMT.
- Japanese wholesale prices rose at fastest annual pace in
13 years
- China PBOC governor Yi Gang expects annual average
inflation below 2% this year.
- Volkswagen sees semiconductor supply shortages
easing in Q3
- UK house-buying frenzy builds ahead of tax cut deadline -
RICS
- Emerging markets: central banks meet in Peru and Serbia.
- Yuan briefly hits 1-week high on Sino-U.S. trade talks.
(Dhara Ranasinghe)
*****
SLIGHTLY HIGHER BEFORE U.S. DATA, ECB (0533 GMT)
European stock futures are slightly higher, ahead of the
European central bank policy meeting and U.S. inflation data,
both due this afternoon.
While investors are looking for more clues about when the
Fed’s tapering discussion time will come, they expect the ECB to
be as neutral as possible, with no changes in guidance of asset
purchasing. Here just an unexpected mentioning of the t-word
might trigger a market reaction.
The debt market seems not so concerned about U.S. inflation
as Treasury yields overnight fell below 1.5% for the first time
since May 7, while investors were positioning for data.
A month ago, strong CPI numbers helped push U.S. borrowing
costs to 1.7%.
(Stefano Rebaudo)
*****
