Last checked at 
* STOXX 600 down 0.1%
* Banks, oil, travel stocks lead gainers
Jan 12 - 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 WHAT TO MAKE OF IT (1140 GMT)
A monetary policy accident, with the ECB or the Fed jumping
the gun on rates is clearly one of the main risk threatening the
so-called "rational bubble" which is keeping equity markets in
such a upbeat mood despite the resurgent pandemic.
Saxo just highlighted a high risk "of higher-than-expected
interest rates and with it a risk to the stock market through
high risk sensitivity in technology and speculative stocks
without earnings".
No doubt then that many traders read this morning with some
kind of relief ECB board member Isabel Schnabel saying a
short-term rise in inflation would not have a material impact on
policy.
Still, by the tone of market research notes these last few
days, inflation, and what to make of it, is on everyone's mind
as the "goldilocks" cycle fades into the unknown of COVID-19
exit strategies.
"What happens after a sharp recession, when governments
massively expand money supply, increase debt and hold down
interest rates to stimulate growth?", asks Graham Campbell from
the TB Saracen Global Income and Growth Fund.
"Will they be able to restart the economy and will they be
able to fine tune the levers to control inflation?"
Russ Mould, investment director at AJ Bell, has similar
questions.
“Investors are now looking much further into the future and
wondering not only when the world will get back on its feet but
also how that might feed into inflation, interest rate hikes and
so on".
The uncertainty, he adds, might cause some unpleasant market
price action.
"That could bring about a new spell of stock market
volatility as investors react to signals from the bond market
and central bank commentary".
For Unigestion’s head of macro Research and portfolio
manager, Florian Ielpo, investors need to prepare for
inflation's comeback now.
"The recognition of a growing inflation risk is the most
important change in our investment policy in recent months", he
writes in a note, adding that this realisation had led them
"to combine growth assets with inflation assets within our
dynamic allocation".
"Our preference at this stage is for inflation break-evens
as well as energy and industrial metals, without having a
negative view on government bonds for the moment".
(Julien Ponthus)
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UK GROWTH'S CORRELATION WITH VACCINES SHOTS (0938 GMT)
It's about speed.
After a year ruled by pandemic reproduction rates and death
numbers, the markets' focus in now clearly set on how fast
countries can roll out their vaccination campaigns.
"The speed at which the population is being vaccinated will
influence economic performance in 2021," says Jefferies in a
report.
In Europe, this is particularly true for the UK, currently
under a national lockdown and the worst hit country by the
pandemic.
Jefferies says, the UK economy has "the potential to
surprise on the upside" after vaccines have been rolled out.
"Having been slow to lockdown in 2020, the UK is rolling out
the vaccines at a relatively fast rate," the U.S. investment
bank says, meaning there's chances Britain could eventually
re-open the economy sooner than feared.
In order to loosen up restrictions imposed to stem a soaring
infection rate, Britain plans to give the first shot of a
coronavirus vaccine to 15 million members of the highest
priority groups by mid-February, and to tens of millions more by
the spring.
But how the third national lockdown will impact the UK
economy is yet to be seen.
The U.S. bank expects that the UK economy shrank 'only' by
4% during the second national lockdown in November - officials
figures will be out on Jan 15.
If the November numbers are right, the UK economy could be
set to fall around 7% in January considering also the Brexit
effect.
While GDP suffered a historical 19.5% decline in GDP in
April 2020, this time, with a as large portion of the UK
population protected against the virus, economic growth could
jump 5% during the same month in 2021.
But again, much depends on how fast the government delivers
vaccine shots to the population.
(Joice Alves)
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FINANCIALS PROP EUROPE UP (0828 GMT)
European shares are off to a mildly positive start this
morning with financials providing the biggest uplift, helped by
a continued sell-off in the bond market.
Banks are rising 0.8% and other cyclical sectors from oil
and gas to travel are also doing nicely, driving the STOXX 600
up 0.2% in early deals and helping the pan-regional benchmark
recover part of yesterday's drop.
Among top movers, a collaboration deal in obesity treatment
with Novo Nordisk is pushing Zur Rose shares up for a
second day, while Games Workshop is down 5% as its
strong profit performance failed to impress.
Here's your opening snapshot:
(Danilo Masoni)
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SELLING BONDS BEFORE BIDEN (0807 GMT)
The bond market has sprung back to life in recent days, with
yields on U.S. Treasury bonds jumping to their highest in 10
months as investors brace for a wave of government spending
under a Joe Biden administration.
The move is noticeable because, while stock markets have
rocketed to new record highs, bond yields had until recently
remained low and stable -- a deliberate aim of central banks
that have chucked record stimulus at markets to keep government
borrowing costs low.
On Tuesday the 10-year Treasury yield edged up another 2.4
basis points to 1.158%. Not only have markets brought forward
bets on Fed interest rate hikes to 2023, many also reckon it
could start withdrawing -- or tapering -- asset purchases
earlier.
They got no relief from Fed officials, with Atlanta Fed
president Raphael Bostic declaring himself "open" to tapering in
late 2021.
If the move is the start of a longer-term shift higher, it
has potentially big consequences for equity traders accustomed
to a backdrop of near record low yields.
That alongside rising COVID-19 cases and a selloff in U.S.
technology shares had unnerved investors on Monday, alongside
Washington's threats to delist shares in major Chinese
companies.
On Tuesday though, European shares set to open higher and
Japanese stocks earlier hitting a new record. The MSCI World
Index is back in the black and oil prices are 0.8% higher.
Concerns over the future regulation of social networks sent
Twitter shares falling as much as 12% overnight after its move
to suspend Donald Trump's widely-followed account. Facebook and
Alphabet, which issued similar bans, also fell.
Wall Street firms such as Goldman Sachs and JPMorgan, and
Blackrock's iShares ETF arm all said they had cut exposure to
China's stocks as a result of pressure from Washington.
Key developments that should provide more direction to
markets on Tuesday:
-Swiss chemicals maker Sika posted a nearly 3% drop in
annual sales.
-UK consumer spending contracted 2.3% year on year in
December, payment card provider Barclaycard said, the biggest
drop since June. Spending in pubs and bars dropped 71%.
(Tommy Wilkes)
*****
EUROPE SEEN STEADYING AT THE OPEN (0630 GMT)
European shares look set to open flat this morning after
correcting from 10-month highs in the previous session on
concerns that surging Coronavirus cases could slow down a global
economic recovery.
Futures on the euro STOXX 50 and the DAX indexes are up less
than 0.1%, while FTSE 100 futures were just around flat.
Over in Asia, shares took a breather as political turmoil in
Washington and rising coronavirus cases gave pause, although a
selloff in U.S. Treasuries deepened as investors reckoned on a
big spending government.
(Danilo Masoni)
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