Last checked at 
* STOXX 600 down 0.5%
* European tech falls, Nasdaq futures down 1.8%
* US 10 year hovering around 1.60%
* Dollar rises
March 12 - Welcome to the home for real-time coverage of
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VALUE: FOCUS ON EARNINGS, NOT YIELDS (1148 GMT)
Most of the market price action these days seems to be about
how U.S. Treasury yields impact the reflation trade versus
growth and tech.
Longer term though, Oddo and Barclays both issued strategy
notes stressing that actually, profit growth is what investors
should be focusing on when it comes to the revival of value and
cyclical stocks.
"Earnings are ultimately the fundamental driver of the
rotation, but are being overlooked given the price action in
rates", the Barclays equity team led by Emmanual Cau wrote.
"Relative EPS momentum is indeed picking up for the Value
part of the market, quite simply because these sectors’ earnings
were the most impacted by the pandemic and thus have the most to
regain as the economy reopens", the Barclays team added,
pointing at miners, energy groups and the banking sector.
At Oddo, strategist Sylvain Goyon says that the in-house
model shows that there's room for the Equity Risk Premium to
ease going forward and because of that, investors shouldn't
focus on the wrong indicators.
"It's more a retreat of expected EPS growth than a rise in
yields that markets should fear", Goyon writes, adding he's that
given the current trend, the outperformance of value is expected
to continue.
Here's a chart from the Barclays note showing there's still
quite a lot of potential upside in Europe when it comes to value
versus growth:
(Julien Ponthus)
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"IF THAT CREEPS BACK ABOVE 1.6%...." (1052 GMT)
That was a warning given yesterday by an equity trader about
the latest market price action on the Nasdaq.
The trader was referring to U.S. 10-year Treasury yields
which look like all you need to watch these days to guess where
the Nasdaq is heading to.
When yields rise to 1.6%, sell Nasdaq!
When they touch 1.5% or lower, buy!
And guess what? This morning the U.S. yields were hovering
around 1.60% and Nasdaq futures, surely enough, are falling,
currently down 1.8%.
That's pretty much been the narrative since late February.
Why? Investors typically are willing to pay more for
near-term growth when rates rise as cyclicals tend to do well in
the early days of economic boom.
And on the contrary, they want to pay less for long-term
growth in this phase.
Okay but what's a long-duration stock?
Goldman has a very simple definition: stocks with strong
long-term growth prospects, in particular those that are not
cash flow positive currently, have the longest equity duration.
Some of the names in Goldman's long duration basket: Peloton
Interactive, Beyond Meat, Moderna, Lyft, Fastly, Zoom. All these
stocks were winners in 2020 when rates were near record lows and
have pulled back quite a bit in the recent days.
With those names it's clear that tech stocks have the
longest equity duration. Hence, the tech heavy Nasdaq 100 has
taken a beating in the past few weeks.
Here's a chart showing strong correlation with yields:
(Thyagaraju Adinarayan)
*****
EARNINGS MOMENTUM FOR THE S&P (1015 GMT)
The U.S. are expected to offset the adverse impact of rising
yields with a strong recovery coupled with expansion of
earnings, which is the main equity key driver.
“Much better than expected earnings should drive further S&P
500 upside through 2021,” UBS analysts say.
"We raise our S&P 500 price target for year end to 4250,
from 4100, on higher forecasted EPS of $188 for 2021 and $218
for 2022", they add.
While the Fed's policy will be crucial as higher rates have
an impact on stock valuations, politics also have to be closely
monitored. More corporate and capital gains taxes coupled with
greater regulation would reduce UBS estimates by 12%.
(Stefano Rebaudo)
*****
EUROPE ON THE BACKFOOT (0837 GMT)
A cocktail of reasons for the pullback in Europe this
morning, despite strong sessions in U.S. and Asia overnight. The
Stoxx 600 index is however comfortably poised to record a gain
for the week.
Concerns about the vaccination campaign, with AstraZeneca
further cutting its supply forecast are dampening risk
sentiment.
Then we have yields on the rise above 1.6% in early London
trading and China warning the United States to stop interfering
in its affairs, including Hong Kong.
The Stoxx 600 index is down 0.3%, with Tech stocks leading
losses down 1.2%, inline with Nasdaq futures.
Shares in online investor Prosus are down 4.4%,
after China's watchdog imposed administrative penalties on 12
companies including Internet giants Tencent and Baidu for
violating anti-monopoly law in 10 deals.
Bank stocks are in positive territory after
yesterday’s strong post-ECB selloff.
Burberry is the best performer of Stoxx 600, up 7%,
after the company raised its outlook.
(Stefano Rebaudo)
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TROUBLE RETURNS (0811 GMT)
U.S. 10-year Treasury yields are on track to rise for the
seventh week straight. But a measure of calm that had returned
in recent days seems to have dissipated on Friday as yields are
making their way back towards recent one-year highs above 1.6%.
Euro zone yields too are higher this morning, though to a
lesser extent, still benefiting from the ECB's promise to
accelerate emergency money-printing.
That in turn is putting the dampener on stock markets --
world stocks rose three days in a row as U.S. yields pulled back
but are now turning tail -- Nasdaq futures are down 1%. Futures
for the S&P500 and for European stocks are also weaker, albeit
to a lesser degree.
So what's going on? Jobs data on Thursday indicated the U.S.
economy is well on the road to recovery while President Joe
Biden signed into law a $1.9 trillion COVID-19 relief bill and
a 30-year Treasury auction had a mixed outcome.
That was partly down to dealers offloading Treasuries to
hedge a corporate bond deal from Verizon, it nonetheless
continues to suggest persistent uncertainty about appetite for
U.S. government debt.
And as the risk sentiment sours going into the weekend, the
dollar has risen off one-week low against its rivals, slamming
currencies such as the euro and Aussie dollar almost half a
percent lower. An index of emerging market currencies which on
Thursday posted its biggest rise since early-January has fallen
back.
But it's not all bad news. The Nasdaq, despite a recent
recovery, remains well behind the Dow 30, S&P and Russell 2000
indexes which have hit records -- clearly investors, seeing
economic recovery on the horizon, are piling into old economy
stocks such as banks and energy.
Key developments that should provide more direction to markets
on Friday:
-Britain's economy shrank by 2.9% in January from December
-Brent oil prices ease but stay near $70 a barrel
-British luxury group Burberry raises outlook after strong
bounceback in sales;
-Apple's market value could breach $3 trillion if the iPhone
maker successfully makes Apple Car, Citi says,
-Euro area industrial production
-Canada employment report
(Saikat Chatterjee)
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EUROPEAN FUTURES TAKE A BREATHER (0633 GMT)
European stock futures are pointing to a session flat or
slightly in the red, as equities seem keen on taking a breather
after a rally which drove the Stoxx 600 index close to
pre-pandemic levels.
Germany’s Dax has been hitting fresh record highs since the
start of the week and many Europe’s benchmark sectoral indexes
are at their highest levels or close to them.
The bigger picture remains favourable to risk sentiment
after the ECB announced an increase of PEPP buying pace to keep
a lid on borrowing costs, while subsiding inflation fears
boosted Wall Street and Asian stocks overnight.
(Stefano Rebaudo)
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