Last checked at 
* COVID-19 surge spooks investors
* STOXX 600 down 0.3%
* Doubts on the reflation trade
Jan 11 - 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
WHAT'S THE BOBL FORTUNE TELLER TELLING US? (1205 GMT)
How much should you trust a fortune teller?
Well probably not much but according to NatWest, Germany's
five-year bond is one of the most reliable around.
The bank's analysts found that in 10 of the last 11
instances, what 5-year German bonds did in the first week of
January signalled their direction for the year.
It scored the highest against a range of assets as you can
see below in a table taken from NatWest research:
"Hardly worth a trade, but perhaps German bond investors are
a bit better than the rest of us in gazing to the future!,"
NatWest analysts write.
Germany's 5-year Bund yields ended last week up just 1.3 bps
at -0.73%, compared with a 12 bps jump in U.S. peers
as the reflation trade gripped the U.S. Treasury market
.
These move broadly sum up sentiment towards euro zone bonds
versus the U.S.
Euro area debt yields are expected to rise this year but a
still weak growth outlook combined with a heavy European Central
Bank stimulus suggests room for selling will likely be limited.
(Dhara Ranasinghe)
*****
THE VALUE/GROWTH DILEMMA (1105 GMT)
The dilemma between growth and value is more topical than
ever, as expectations of more U.S. stimulus fuel reflation
trades and have already sent 10-year yields above 1%.
According to JP Morgan, value rotations have legs as “the
catalyst for the next leg up in bond yields is here.”
With a mini-Blue wave scenario in place, markets will focus
on reflationary policies, more than on higher taxes, fuelling
inflation expectations, a JP Morgan research note says.
A gap between inflation forwards and bond borrowing costs
“could lead to a continued move up in bond yields, which would
be a strong catalyst for the next leg up in the Value trade.”
The investment bank disagrees with the idea that value
rotation comes with falling markets. It was the case in 2001,
but “value factor has historically shown a clear positive
correlation with the overall market direction.”
Value bounced three times over the past 12 months amid
rising equity market: in May, late November and again last week
after the election results in Georgia.
What generally comes across as cheap are Banks, Insurance,
Mining, Steel, Construction, Retail, Travel & Leisure, Autos,
Energy, Real Estate and Telecoms, but JP Morgan says it would be
less keen to chase the last four.
Besides the bank maintains its long term overweight in
Utilities and Semiconductors.
Value versus growth divergence remains “extreme.”
(Stefano Rebaudo)
*****
ITCHY FINGERS: FANGDD TO SIGNAL, A RETAIL MANIA LIKE NO
OTHER? (0938 GMT)
Amateur retail investors have been at the front and center
of the rally which followed the March 2020 COVID-19 market
crash.
Their stock picking choices however, often based on dubious
advice from Twitter or Reddit, have been criticised as leading
to bubbles in some parts of the market.
And while some of those bets have paid off handily, others
are likely to have handed them hefty losses.
In stark contrast to Wall Street's highly paid
professionals, who do a deep-dive analysis of stocks or indices
before investing, these punters pick them up on face value with
share trading available on mobile phone apps.
In one such instance, share price of a little-known U.S.
company, Signal Advance, soared to $7 from 70 cents --
a whopping 1,000% -- late last week with the moves widely cited
to Tesla founder Elon Musk's tweet to "use Signal".
(Image below shows how Google suggests Signal Advance stock,
when you type 'Signal' in the search bar)
While Musk was referring to a texting app which competes
with the likes of Whatsapp, retail punters on platforms such as
Robinhood seem to have mistaken it for a listed company that
started with the word Signal -- an obscure, over-the-counter
traded company whose technology is used in a range of medical
applications, including cardiac rhythm management (CRM).
Such trades are not uncommon. In June, a little-known
Chinese online real estate company's shares jumped as much as
1,250% on Nasdaq as a part of its name had FANG -- the
abbreviation for Facebook, Amazon, Netflix and Google.
FANGDD Network has since lost 94% of its value.
Meanwhile, the frenzy among retail investors have also led
to soaring valuations in some tech and green stocks.
Investment bank Saxo pointed to a bunch of "bubble stocks",
including Tesla which trades at 206 times 12-month forward
earnings. That's a far cry from Daimler's 10 times forward
earnings and Toyota's 16 times.
With Tesla shares rising 25% YTD, Saxo says it is ringing
the alarm on "bubble stocks as history suggests an ugly end to
such a speculative rally".
Another retail favourite, Bitcoin is no stranger
to the "bubble" topic with the crypto currency soaring above
$40,000 -- 900% jump from March lows.
The ongoing euphoria has led to many markets mavens drawing
comparison to the dotcom bubble.
(Thyagaraju Adinarayan)
*****
VIRUS WORRIES STEAL THE SHOW (0833 GMT)
European stocks are lower as virus worries make a come back
after a recent jump in stocks on hopes of a bigger than expected
stimulus plan in the U.S.
Basic material stocks are leading losses down 1.2% on
concerns about commodity demand as China saw its biggest daily
increase in virus infections in more than five months.
The Stoxx 600 index falls 0.4%, with travel and leisure,
autos, and utilities down about 1%.
Investors are also worried about the last nine days of
Donald Trump in office, while Democrats are trying to impeach
him in a move that would bar him from running for president
again in 2024.
They are also wondering if a slight majority in the Senate
will be enough to get approved trillions of fiscal stimulus
promised by president-elect Joe Biden.
Among single stocks, EasyJet is down 0.9% after a
strong start as the company boosted its liquidity through a
$1.87 billion loan. JD Sports is the best performer on
Stoxx 600, up 4.8%, after a trading update.
(Stefano Rebaudo)
*****
WATCH THOSE BOND YIELDS (0748 GMT)
U.S. President-elect Joe Biden is expected to announce plans
for "trillions" in new relief bills this week and therein lies
the explanation for why stock markets hit record highs on Friday
despite the dispiriting 140,000 drop in U.S. payrolls in
December.
But with most of this largesse due to be paid for by
borrowing, bond markets are starting to move. Ten-year U.S.
yields above 1.10%, the highest since March, and money-markets
are bringing forward the timing of the first Fed rate hike, in
turn boosting the dollar.
Bad news for risk sentiment -- Wall Street futures are duly
0.6% lower, while Europe too is opening a touch weaker. The euro
is trading below $1.22 for the first time since Christmas Day
and euro zone yields are a touch lower.
At the other side of the world, the yuan's gains have been
halted by the dollar's sudden upward move and stocks are lower.
However, data showed Chinese factory gate prices falling at the
slowest rate in 11 months -- meaning the manufacturing sector
continues to recover -- while consumer prices returned to growth
after slipping in November.
It will be a busy week. JPMorgan and Citi kick off Q4 U.S.
results which are expected to have fallen around 10%, though
focus will be on 2021 guidance. Sino-U.S. tensions could
escalate further during President Donald Trump's last full week
in the White House while Germany's ruling CDU will elect Angela
Merkel's successor.
And lets not forget the pandemic is still rampant, with the
contagious new variant taking global COVID-19 cases past 90
million. All the best laid plans could be disrupted unless its
grim progress is slowed.
Key developments that should provide more direction to markets
on Monday:
- Goldman Sachs JPMorgan and Morgan Stanley will delist 500 Hong
Kong-listed structured products
-On the electric vehicles front, Hyundai Motor and Apple Inc
plan to sign a partnership deal on autonomous electric cars by
March; China's Baidu is to partner with carmaker Zhejiang Geely
to make smart EVs
-Airline easyJet took out a five-year loan facility of $1.87
billion, backed by a partial guarantee from Britain.
-Dallas Fed's president Kaplan and Atlanta Fed's Bostic speak
-U.S. Treasury to auction 6-month and 3-month t-bills.
(Sujata Rao)
*****
EUROPEAN STOCK FUTURES IN THE RED (0628 GMT)
European stock futures are in the red as markets seem to be
willing to take a breather after a recent surge on expectations
of more fiscal stimulus in the U.S.
Investors are wary of U.S. politics with President Donald
Trump seen as a risk factor in his last nine days in office,
while Democrats are trying to oust him.
Besides the U.S. are lifting restrictions on Taiwan in a
move that is likely to anger China and increase tensions between
Beijing and Washington.
Virus worries continue to weigh with most of Europe under
strictest restrictions and mainland China seeing its biggest
daily increase in virus infections in more than five months.
(Stefano Rebaudo)
*****
