Last checked at 
* STOXX 600 up 0.3%
* Stimulus optimism boost
* World shares near record levels
* U.S. payroll report due at 1330 GMT
* Beazley surges 14% on upbeat outlook
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markets.research@thomsonreuters.com
BUILDING BUBBLE BUT NO BUST (1153 GMT)
Are we in a stock market bubble or not? The debate rages.
We detailed here many bubble symptoms: heightened
participation by the man and woman on the street, massive
first-day IPO pops, exalted price-earning valuations.
Yet there is no shortage of people in the opposite corner.
Check out this bubble index compiled by Emiel van den
Heiligenberg, head of asset allocation at Legal & General
Investment Management.
Van Heiligenberg, who describes himself as having a
fascination for bubbles, bases the index on financial data such
as valuations and yield curves as well as subjective indicators
he tracks himself.
These include how much attention non-financial media pays to
markets or whether investment has become a party conversation
topic.
His index does show bubble risks at the highest since 2008.
Yet at 35 points, it's well below levels hit back then and half
of the 1999/2000 peaks.
Van Heiligenberg acknowledges that retail trader activity
and bumper IPOs carry echoes of the 1990s tech bubble but
believes it's too early to position for a burst.
"There is plenty of money on the sidelines...the consumer
savings rate is high, there is spare capacity to be absorbed,
and yet another fiscal package is on the horizon," he writes.
"So there is plenty of firepower left and no real catalyst
to stop it."
Also, the thing to watch is the premia equities pay over
bonds.
The S&P500's current low-20s P/E ratio translates into a
roughly 4% return on stocks, says Jeremy Schwartz, global head
of research at WisdomTree Asset Management.
At the same time, real 10-year U.S. yields (adjusted for
inflation) are around minus 1% -- a 5% equity risk premium,
Schwartz notes, comparing it with long-term 3%-3/5% levels.
Bubble or not, there may be some way to go yet.
(Sujata Rao)
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EGB DEMAND SUBDUED IN CORONAVIRUS TIMES (1114 GMT)
The European Central Bank is expected to cover a significant
part of the unprecedented increase of pandemic-induced European
government bonds (EGB). So it seems obvious to wonder what the
situation would be without the ECB support.
Commerzbank updated its proprietary investor flow monitor
for euro zone sovereigns and found out some “major bottlenecks.”
They are “significant as net issuance looks set to stay
above pre-pandemic levels while eventual monetary and regulatory
tightening implies falling net purchases from the ECB and euro
zone banks,” Commerzbank analysts say.
Let’s see in details.
Euro based institutional investors have been virtually
unresponsive, with asset managers and ALM accounts (ie.
insurance companies and pension funds) doing only marginal net
purchases and even turning into modest net sellers in Italy.
The bank estimates that net purchases in Bunds of overseas
investors have exceeded those of the ECB, while for peripherals,
overseas investors have hardly provided support.
Moreover, these flows have been primarily driven by foreign
central banks rather than overseas institutional investors.
In the chart below, ECB along with euro zone-based banks
have been key in absorbing the increase of sovereign funding.
(Stefano Rebaudo)
*****
HERE IS WHAT ESG INVESTORS ARE MISSING(0947 GMT)
No doubts Environmental, Social and Governance (ESG) is on
the rise and will be in the foreseeable future, but which, in
that universe, are the most loved sectors and companies?
Credit Suisse, after reviewing the key holdings of 113 ESG
funds, gave some answers and found there are some very
interesting companies missed by investors.
See in the table below “high quality, momentum, eCAP ESG
leaders that are not in the current top holdings of our ESG
funds,” on which CS is overweight.
Among the three European stocks missed by investors are
Diageo, Experian and DSV.
Vestas Wind Systems is currently “the most popular
European stock,” Credit Suisse says.
Themes which are on the rise include Renewable Energy and
Energy Storage, with Xinyi Solar, SolarEdge
Technologies, Tesla and Generac among
key holdings.
Technology and related stocks have been a key focus, but
they are losing their grip with ESG investors, according to CS.
(Stefano Rebaudo)
*****
INCREASING RISK-APPETITE (0828 GMT)
Following Wall Street record highs, European stocks start
off in positive territory mode with travel and leisure and tech
stocks leading gains.
The Stoxx 600 index is up 0.3%, with tech stock
index up around 1% as the U.S. Nasdaq posted a record
closing high after another batch of upbeat earnings. Also travel
and leisure stocks are among the best performers up about 1%.
Investors’ hopes are rising that Joe Biden’s stimulus
package would pass through Senate, as U.S. Democrats are working
on bypassing Republican roadblocks to get the approval with a
simple majority.
But vaccine roll-out delays continue to weigh on
risk-sentiment in Europe, though some analysts are confirming
the outlook of a solid economic rebound in the second half of
2021 also in the continent.
After results shares in Sanofi are up 3.1%, BNP
Paribas up 1%.
(Stefano Rebaudo)
*****
A FINE BALANCE (0758 GMT)
What's not to like? COVID caseloads are falling, U.S.
Democrats are working on bypassing Republican roadblocks to pass
President Joe Biden's spending plan, U.S. Q4 earnings are
bucking forecasts for a decline and the Reddit frenzy has
abated.
So world stocks are back near record highs, following Wall
Street's 1% gain on Monday. U.S. and European equity futures
point to the robust session ahead. And oil is near $60 a barrel,
a one-year high.
It's also payrolls Friday in the United States. Economists
expect 50,000 jobs added in January but they will want to see a
number that's not too weak, yet not strong enough to derail
Biden's big fiscal spending push.
And it's a fine balance too on markets. Robust economic data
and the stimulus promise are pushing borrowing costs higher,
with the 2-year/10-year U.S. yield curve reaching the steepest
since 2017.
So far, it's good news for reflation punts such as travel
shares, and central banks are still expected to cap
extraordinary yield moves.
And little sign the dollar, set for its best week in three
months, is disrupting risk-on. Proof? Most emerging market
currencies such as the rand or the lira are up 1%-3% on the
week.
Finally, palpable relief still on UK assets after the Bank
of England appeared to put negative interest rates on the
backburner for now -- British 10-year yields have jumped to the
highest since last March.
Key developments that should provide more direction to markets
on Friday:
-German manufacturing output/industrial orders
-UK Halifax house prices
-U.S non-farm payrolls
-BOE's Bailey to speak
-ECB policymakers Luis de Guindos, Isabel Schnabel, Pierre
Wunsch, Olli Rehn and Robert Holzmann speak
-Danish brewer Carlsberg reported Q4 sales below expectations
but expects operating profit to grow 3% to 10% in 2021.
-BNP Paribas' saw pandemic charges erode Q4 earnings;
Raiffeisen Quarterly profit beat estimates and it plans to pay a
2020 dividend of 0.48 euro.
-U.S. firms Cardinal, Lazard, Estee Lauder to post results
(Sujata Rao)
EUROPEAN EQUITIES BOOSTED BY WALL STREET RISK-ON MODE (0633
GMT)
European stock futures are in the black as risk-on trading
spread from Wall Street to global financial markets, after
upbeat earnings and strong macro data in the U.S.
U.S. investors are positioning for a large pandemic aid
package as well as more growth and inflation due to progress on
vaccine roll-out.
Hopes rose overnight that President Joe Biden's COVID-19
relief proposal would pass through the Senate relatively intact.
The derivatives for Germany's DAX and euro zone blue chips
are rising 0.3-0.5%, roughly in line with Wall Street futures.
(Stefano Rebaudo)
*****
