Last checked at 
* Relief over Evergrande bond interest payment
* STOXX up 0.6%, flat on the week
* Fed meeting in focus
* Wall Street futures rise
Sept 22 - 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
INFLATION AND SUPPLY CHAIN ANGST (PART 2): FEDEX (1108 GMT)
We highlighted yesterday that the few warnings that have trickled down ahead of the upcoming
earnings season point to rising inflation and supply chain angst among global corporates.
The latest one came from FedEx which delivered a substantial miss and a small cut to
its full-year targets.
Why the disappointment?
Wage inflation is to blame and it could get worse.
Berenberg says investors may view its guidance cut "as too optimistic given the continued
inflationary pressures in the US" and noted that even though the shares have already
underperformed for several months now, they could still remain weak given the underwhelming
margin performance.
There's already a negative readcross here in Europe with Deutsche Post shares being hit
by the FedEx warning.
But more broadly, wage pressures are heating up and won't be limited to the U.S. or the
transport and logistics industry.
Analysts at Jefferies pointed out at the beginning of the month that staff shortages in
healthcare services, video games and elevators, to name a few sectors, will likely have a direct
impact moving forward.
They saw earnings risks for a wide range of European companies, namely Fresenius Medical
Care, Team17, Ubisoft, Royal Mail, Bpost and
Kone.
Some reading:
FedEx labor shortfall hits quarterly profit, earnings forecast
Inflation and supply chain angst: "Welcome to warning season"
Did inflation just crash the WFH = DYI party?
Pay raise: from main street to Wall Street
(Danilo Masoni)
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AUKUS POCUS: BRAZIL! (1004 GMT)
It's fair to say that the French fury against Australia ditching its $40 billion contract
for conventional submarines didn't send shockwaves throughout global markets.
In fact, to be fair, there's actually been very little French-triggered market price action
even if the diplomatic crisis is of a rare scale with Paris recalling its ambassadors from
Washington and Canberra.
While the geo-strategic implications of the fallout for France and its allies are still
unclear, for investors, the centre of attention lays elsewhere.
China's anger and the economic pressure it might put on Australia to retaliate against
'AUKUS', the country's new U.S./UK security partnership involving nuclear-powered submarines,
may have long lasting consequences for investors.
One possible trade if the tensions between Beijing and Canberra escalate further is to bet
on Brazil versus Australia, argues Vincent Deluard, a global macro strategist at StoneX.
"Brazil, which has a very similar export structure as Australia, could benefit from Chinese
trade retaliation: Brazilian exports of iron ore to China have fallen to less than half of their
2018 peak, offering plenty of room for a catch-up", he wrote in his latest strategy note.
In terms of currencies, the undervalued real is in a better place, Deluard argues, pointing
out that Brazil's interest hike cycle is already well underway while "the Reserve Bank of
Australia is running a full-scale MMT experiment, as if the Aussie were the world’s reserve
currency".
"Similarly, Australia’s overpriced real estate, banking sector, and red hot startup scene
would be very vulnerable to tightening of global liquidity", Deluard adds.
"Brazil’s got a million problems but overvalued asset prices are not one of them".
Here's a chart from Deluard's research showing how Brazil could catch up in terms of exports
to China:
(Julien Ponthus)
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DIP BOUGHT! STOXX 600 NOW SET FOR WEEKLY GAINS (0749 GMT)
Old habits die hard and traders don't seem ready to give up on the buy-the-dip strategy that
has been a winner since the March 2020 COVID-19 crash.
The STOXX 600 is up 0.6% and has recouped Monday's losses when worries surrounding a default
from China's Evergrande rocked global markets. The pan-European index is now up about 0.1% for
the week.
China's No. 2 property developer said it would make a bond interest payment on Sept. 23
after private negotiations with bondholders.
The question is of course whether Evergrande will be able to keep up with all the incoming
payments due but in the meantime, stock markets are celebrating, not only in Europe but also on
Wall Street where futures are also up.
Of course Evergrande isn't the only concern around and the Fed's meeting will definitely be
the focus of today's session.
Back to Europe, there's also quite a lot of market action among individual stocks with
Entain's shares jumping 10% to an all-time high after the gambling firm revealed a $22.4 billion
takeover proposal from Boston-based DraftKings.
In the same sector, Flutter jumped 6% after agreeing to pay $200 million to the Commonwealth
of Kentucky in addition to $100 million previously forfeited to settle an $870 million judgement
reinstated last year.
France's Iliad is flat by contrast after striking a deal with U.S. cable operator Liberty
Global to buy Polish fixed internet operator UPC for an enterprise value of $1.78 billion.
(Julien Ponthus)
*****
SOME RELIEF - BUT HOW LONG WILL IT LAST? (0653 GMT)
Relief is at hand for markets on Wednesday, after China's Evergrande said it would make a
domestic bond coupon payment.
U.S. stock futures, the yuan and the risk-sensitive Australian dollar
are riding high, while the safe-haven yen and U.S. Treasuries are on the back foot.
Don't get too comfortable -- even if Evergrande makes its Sept. 23 onshore bond payment, it
has not indicated whether it can pay $83.5 million in interest due on its March 2022 bond on
Thursday. Nor is there any sign the Chinese government plans to mount a last-minute rescue
.
And with the U.S. Federal Reserve set to conclude its two-day meeting later on Wednesday,
perhaps this week's market excitement is not over yet.
After all gas prices are at lofty levels, threatening to hurt consumption, which means
central banks meeting across the globe this week are likely to be challenged on the message that
inflation is transitory.
For the Fed, weaker-than-anticipated jobs numbers have already dampened expectations it will
announce an imminent start to tapering bond-buying stimulus.
It might however clear the way for tapering later this year and show in updated projections
whether higher-than-expected inflation or a resurgent coronavirus pandemic is weighing more on
the economic outlook.
The Bank of Japan just kept monetary policy steady but offered a bleaker view on exports and
output, reinforcing expectations it won't join peers mulling a withdrawal of crisis-mode
support.
Elsewhere, Democrats in the House of Representatives passed a bill on Tuesday to fund the
U.S. government through Dec. 3 and suspend a borrowing limit until end-2022. Senate Republicans
however have vowed to block it.
Key developments that should provide more direction to markets on Wednesday:
- Macy's to hire 76,000 workers for holiday shopping season
- China keeps lending benchmark LPR unchanged
- DraftKings makes $22.4 bln offer for UK's Entain
- Euro zone flash consumer confidence
- U.S. existing home sales data
- U.S. sells 2 year FRNs
- Deputy Bank of England governor Sam Woods speaks
- Brazil may raise interest rates by 100 basis points
- European earnings: Playtech, IG Group
- U.S. earnings: Nike
(Dhara Ranasinghe)
EUROPE SET TO OPEN UP AHEAD OF THE FED (0550 GMT)
European stock futures are trading about 0.6% higher with sentiment pretty positive ahead of
the Fed's meeting later today despite Wall Street failing to rebound yesterday.
"That failure to recover even some of Monday’s losses is a little bit concerning when it
comes to the general buy the dip narrative, although US futures are now positive again",
commented Michael Hewson at CMC Markets UK.
There's however positive mood coming from China where struggling Evergrande Group said it
would make a bond interest payment on Thursday amid investors worrying about the global
consequences of a possible default.
China's CSI300 index lost 0.7% while the Shanghai Composite Index ticked up 0.3%.
The Nikkei was 0.4% down after the Bank of Japan kept its monetary policy steady on
Wednesday but offered a bleaker view on exports and output, reinforcing expectations the bank
will maintain its massive stimulus even as major counterparts eye a withdrawal of crisis-mode
support.
(Julien Ponthus)
*****
