Last checked at 
* UK GDP disappointment
* European Stoxx 600 up 0.3%
* Miners and Tech lead gains, up 1.3%
Sept 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
U.S WAGES ON THE RISE? MAYBE NOT THAT MUCH… (1121 GMT)
The stagflation debate is alive and kicking, mainly for the
U.S., as the spread of the Delta variant threatens their
recovery while recent data showed substantial wage gains.
Oddo economists warn to be cautious as the situation might
differ from what it seems about the wage increase.
“The structure of the workforce has been so disrupted by the
pandemic that statistical noise is amplifying increases in some
wage indices,” they say in a research note.
They reckon that measures of wage inflation that adjusts for
this compositional effect “are running more or less in line with
productivity gains.”
Their point is that the hourly wage rate is more prone to be
hit by the distortion of employment structure during the
pandemic. In April 2020, this rate jumped by more than 8%
year-on-year, not because wages were increasing but because
low-qualified employees were being laid off.
Oddo analysts flag other cost measures adjusted for this
compositional effect, such as ECI and ATW (see table below).
The August job market report, issued last week, attracted a
lot of attention because of the weakness of employment gains and
the acceleration of hourly wages.
See:
U.S. job growth takes giant step back as Delta variant hits
restaurants
(Stefano Rebaudo)
*****
MADE IN GERMANY DISCOUNT (1103 GMT)
How long will Germany's mighty DAX trail behind its European
peers?
Many investors are no doubt wondering when to put their
money back on the index but in the meantime the underperformance
is clear.
The DAX is up only about 10% year to date, against 17% for
the STOXX 600 and 20% for France's CAC 40.
As you can see on the chart above, the Frankfurt blue-chip
index is trailing along with another big underperformer,
London's FTSE 100.
It's not looking that good in terms valuation either with a
big PE discount with the STOXX 600:
"Germany = 'oversold cyclical'", is how Morgan Stanley
strategy team for Europe sees the German stock market.
"Germany is one of the most oversold country indices in
Europe", they write, noting the valuation gap with the rest of
the region.
But the situation could change quickly if cyclical stocks
such as autos bounce back.
"After a summer pause we expect cyclicals to outperform into
year-end, as and when the current growth scare dissipates", they
write as they turn positive on cyclical value and go overweight
on Germany.
(Julien Ponthus)
*****
FTSE UNFAZED BY UK GDP FLOP (0902 GMT)
Only two of the 26 analysts polled by Reuters had expected
the British economy to grow so slowly in July.
The 0.1% reading suggests the recovery isn't as promising as
expected and that the Delta variant is more disruptive than
envisaged.
But so what? The FTSE 250, which is seen as a proxy for the
UK economy is up 0.3%, bang in line with the pan-European STOXX
600.
"The main indices on the UK shrugged off the news,” wrote AJ
Bell investment director Russ Mould, noting that sterling didn't
move much either.
"A big miss on UK GDP expectations didn’t do any harm to the
pound", he also said and at the time of writing, sterling is up
0.3% against the dollar and 0.1% against the euro.
Indeed, many market watchers don't think this is the moment
to run to the hills.
"It is too early to ring the alarm bells", wrote Dean
Turner, an economist at UBS Global WM.
"Altogether, there is little in today’s release to suggest
that the economic recovery will not continue in the coming
months", he explained, adding that it will most not likely
change the assessment of policymakers.
"We doubt that today’s GDP release will dent the Bank of
England’s hawkish mood, so we continue to expect an interest
rate hike in the first half of next year", Turner argued, adding
this should support the pound.
Of course there are still some other worrying signs out
there for the post-Brexit economy such as the fact that Britain
is on course to lose its status as one of Germany's top 10
trading partners this year for the first time since 1950.
See:
EXCLUSIVE-Britain no longer in top 10 for trade with Germany
as Brexit bites
Spread of 'Delta' COVID-19 knocks wind out of UK economy in
July
(Julien Ponthus)
*****
CHINA PROPS UP EUROPEAN STOCKS (0733 GMT)
European stocks are higher as China boosts risk sentiment,
and after the ECB reassured investors it was in no rush to
significantly reduce its monetary stimulus. News of a call
between Chinese leader Xi Jinping and U.S. President Joe Biden
offered some hope competition between the world's two major
economies wouldn't become more acrimonious.
The STOXX 600 index is up 0.3%, with the
China-sensitive basic materials stock index up 0.64%.
The widely expected reduction in the pace of ECB bond-buying
doesn't seem to have triggered a risk-off sentiment, with
analysts talking about the central bank starting a rate hiking
cycle in 2024.
Several investment banks have recently gone overweight on
European equities as the pick-up in momentum of the region's PMI
indicies is more favourable than in the U.S.
Shares in Rubis are down 3.5% after results;
easyJet is down 2%, continuing to slip after Thursday's
rights issue announcement.
(Stefano Rebaudo)
*****
HITTING THE BUFFERS (0709 GMT)
A phone chat between the U.S. and Chinese presidents has
made all the difference to markets' mood: world stocks have
snapped a three-day losing streak, the yuan is at one-week highs
and U.S. Treasury yields are moving up.
Yet there is no dismissing the brewing concerns -- we seem
to be past peak liquidity and peak growth, yet inflationary
pressures show no sign of abating. Chinese factory gate prices
have hit 13-year highs, the ECB just upped inflation projections
and later on Friday, we will see what U.S. producer prices
looked like in August. Remember last month brought the biggest
annual increase in over a decade.
Warnings about input costs are coming through from companies
too, with Nestle warning of even higher factory prices in 2022.
The question is when these costs trickle down to consumers and
their earnings; wage inflation, as we know, tends to be less
easily tamed.
It comes as the post-pandemic growth rebound fizzles. Data
shows Britain's economy barely grew in July (versus expectations
for a 0.6% expansion), even as tax hikes loom.
What of stimulus? The Bank of England appears well on the
road to a 2022 interest rate rise while the Bank of Canada on
Thursday flagged plans to stop adding new stimulus and to raise
interest rates.
Policy has long been tightening across emerging markets and
later on Friday, Russia will likely raise interest rate for the
fifth time this year.
Finally, there is no getting away from the fact that the ECB
-- among the more dovish central banks -- has hit peak QE, even
though it was at pains on Thursday to describe its stimulus
slowdown as recalibration rather than tapering.
So while equity futures signal a more cheerful session in
Europe and Wall Street, stocks may face a rocky ride from here
(read our take on this subject here https://www.reuters.com/business/finance/global-markets-investment-analysis-pix-2021-09-09).
Key developments that should provide more direction to markets
on Friday:
-U.S. President Joe Biden and Chinese leader Xi Jinping spoke
for 90 minutes
-China Evergrande bonds rebound as loan payment extensions ease
default worries
-Willis Towers Watson has $5 bln of capital, possibly for M&A
-Euro zone finance ministers meet
-Fed speakers: Cleveland President Loretta Mester 1300 GMT
-Russia central bank meeting
Ratings: S&P: Ukraine, Ghana, Jordan, Malta; Moody’s: Montenegro
(Sujata Rao)
*****
EUROPE IN THE BLACK, CHINA BOOSTS SENTIMENT (0616 GMT)
European stocks are poised to open higher, with most
analysts overweight on the region, citing policy support from
the ECB and strength of the recovery.
China stocks, rising after U.S. President Joe Biden and his
Chinese counterpart Xi Jinping spoke on the phone for the first
time in seven months, boost risk appetite.
The mixed mood on Wall Street overnight has so far failed to
spoil the party. In the U.S., weekly jobless claims at nearly
18-month lows soothed fears of a slowing economic recovery, but
worries about sooner-than-expected Fed tapering remain.
(Stefano Rebaudo)
*****
