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BANK STOCKS? FORGET CHINA, LOOK AT RATES (0935 GMT)
Higher rates expectations are supposed to boost European
bank stocks while China real estate concerns might present a
downside risk to the sector.
The big question is what between these two factors is going
to prevail.
Credit Suisse analysts see limited direct exposure to
China’s troubled Evergrande.
“Data collection from banks’ disclosures, and cross-check
with Bank of International Settlements (BIS) data on banks’
cross-border positions, suggests Mainland China and Hong Kong
lending by European banks is broadly quite limited,” they say.
JP Morgan does not expect meaningful exposure for European
banks, except for HSBC and Standard Chartered.
Its analysis of syndicated loans data available for major
property developers in China suggests “limited involvement.”
Credit Suisse analysts noted that during the 2014-15
slowdown, banks with more emerging markets balance sheet
exposure underperformed the STOXX 600 bank stock index.
Furthermore, episodes where U.S. 10-year rates rise more
than 50bp over 3 months on average “lead to a 10% rise in the
bank stock index.”
“SocGen, ING and Lloyds (all
rated Outperform by the team) have performed best on average
over three months during these rate episodes,” they add.
The chart below shows the STOXX 600 bank index and
U.S. 10-year Treasury yields and their correlation
(on 75-day data).
(Stefano Rebaudo and Anushka Trivedi)
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EUROPE'S SHARES SLIDE, BUT STILL SET FOR WEEKLY GAINS (0725
GMT)
European shares are falling amid concerns about the fate of
embattled property developer China Evergrande Group and a sudden
spike in bond yields. But after three days of strong
performance, the STOXX 600 is still set for weekly gains.
The top fallers this morning are sport clothing brands and
retailers Adidas, Puma and JD Sports
after rival Nike reported a Q4 results miss and cut its
FY 2022 sales expectations due to a supply chain crunch brought
in by months-long factory closures in Vietnam.
On a brighter note, shares in Astrazeneca rise
around 3% after the company reported positive results from the
PROpel Phase III trial.
(Joice Alves)
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MOVE OVER EVERGRANDE, TIME TO WATCH SOARING BOND YIELDS
(0705 GMT)
World markets remain on edge on Friday as simmering concerns
about the fate of embattled property developer China Evergrande
Group and a sudden spike in bond yields remind investors that
the final quarter of 2021 will be tricky to navigate.
European and U.S. stock futures fluctuated between gains and
losses after U.S. stocks posted their biggest two-day rise since
July.
While a large part of those gains can be attributed to
easing concerns about Evergrande contagion, Thursday's spike in
yields in the global $60 trillion plus government debt markets
raised the prospects of tighter monetary policy sooner than
later.
Long-term U.S. Treasury yields have surged the most in 18
months as traders brought forward expectations for the first Fed
rate hike to the end of 2022 and the Bank of England opened the
door to a 2021 rate increase -- sparking the biggest jump in
two-year UK gilt yields since March 2015.
Yield curves from Australia to Germany bear steepened in
response and the dollar sprung to the top of its 2021 trading
range. While it remains to be seen whether the rise in yields
can be sustained, some signs of weakness can be detected in the
“buy the dip” trade from investors.
Value stocks, a beneficiary of higher yields, outperformed
growth ones on Thursday while FAANG stocks have underperformed
broader markets so far this month. And if investors are hoping
quiet weekend, think again.
Sunday's election in powerhouse European economy Germany
will provide food for thought as Chancellor Angela Merkel steps
down after 16 years in charge.
Her successor will play a new role in shaping domestic and
broader EU policy and have to steer Germany's economy through a
still uncertain post-COVID environment.
Thursday's flash PMIs for September pointed to a sharp
slowdown in economic activity from the previous month from
rising energy prices and difficulty in sourcing parts and
materials, headwinds that are unlikely to abate in the coming
days.
Key developments that should provide more direction to
markets on Friday:
- ECB's Lagarde says many causes of inflation spike
temporary: CNBC
- Nike warns on holiday delays, cuts full-year sales
estimate
- Daimler's Mercedes-Benz to take a 33% stake in
battery cell manufacturer Automotive Cells Company
- Germany's IFO survey for September
- Fed speaker corner: Powell, Clarida
(Saikat Chatterjee)
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EUROPE SET FOR WEEKLY GAINS (0635 GMT)
Futures are pointing to a flat open for European bourses but
the STOXX 600 is set for strong weekly gains, with analysts
saying investors bought the dip this week after a sharp Monday
fall, amid uncertainty around the fate of debt-ridden China
Evergrande.
The risk on sentiment was also supported by a rate hike by
the Norwegian central bank and hawkish remarks from the Bank of
England reinforced market expectations that the Federal Reserve
would begin tapering by year end.
Capping the enthusiasm, property developer Evergrande missed
an interest payment deadline on Thursday and has entered a
30-day grace period.
(Joice Alves)
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