Last checked at 
* European Stoxx 600 down 0.8%
* Oil and bank stocks in positive territory
* Tech stocks down 2.5%
Feb 23 - 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
IS THE ECB VERBAL INTERVENTION ENOUGH? (1219 GMT)
Government bond yields are on the rise despite verbal
intervention of the ECB, as they seem willing to track
yesterday’s U.S. Treasury borrowing costs rise ahead of the
testimony today of Fed Chair Jerome Powell.
But the issue is whether Christine Lagarde saying “ECB is
monitoring nominal yields” will be enough to counteract the U.S.
reflation trend in the medium term.
“We doubt that the clarification from Lagarde will be enough
in itself to stop nominal bond yields from rising a little more,
especially if the uptrend in U.S. nominal yield continues,” Citi
analysts say.
“We would therefore expect the ECB to use the flexibility of
its PEPP programme to increase purchases this week and maintain
a higher level of purchases in the run-up to the 10/11 March
monetary policy meeting,” they add.
“The ECB could eventually move towards a kind of (real)
yield curve control,” according to ING economists.
“Until then, one thing is clear, staying on the sidelines
has become less comfortable for the central bank in recent
days,” they say.
The uptrend in Germany’s benchmark 10-year Bund yield
is back after yesterday’s fall on Lagarde comments.
(Stefano Rebaudo)
*****
PLAYING CATCH-UP WITH INTEREST RATES (1144 GMT)
Interest rates are crucial for equity performance and a rise
in U.S. yields has sparked volatility across the board.
So we probably need a medium term assessment about the link
between yields and stock valuations.
“Nominal bond yields have tended to rise when the market has
risen, and vice versa; a reflation barometer,” UBS analysts say.
“By contrast, market beta to real yields has gone from being
insignificant to shifting sharply lower over the last 5 year,
and particularly so over the last 1 year.”
But there is more because “the market begins to see a
non-linear increase in sensitivity to real yields when they rise
by around 30-40 bps over 3 months.”
However, this pain threshold rises if the economy grows.
“A 1% gain in commodity prices (roughly equivalent to a
0.6pt real time reassessment higher in PMI prints) provides an
incremental buffer of 8 bps on real rates before the market
hurts,” they add.
(Stefano Rebaudo)
*****
BASIC MATERIALS OUTPERFORMANCE (1004 GMT)
Economic growth expectations and rising commodity prices
have been boosting basic materials shares for months.
But while the economic recovery remains affected by vaccine
and pandemic developments, commodity prices might benefit from a
sort of self-fulfilling mechanism, which might be good news for
this kind of stocks.
As more investors want to hedge against inflation, they add
more commodities (real physical anchored assets) to their
portfolio, which, in turn, raises inflation and importantly
inflation expectations further, MUFG analysts say.
“Thus, the prevailing inflation narrative is
self-reinforcing.”
“We believe that EM (emerging markets) inflation
apprehensions are only starting out as global markets are
unlikely to adjust narratives before reopenings firmly take
hold,” they add.
In the chart below Basic materials stocks
outperforming the Stoxx 600 and the Stoxx Optimised
cyclicals.
(Stefano Rebaudo)
*****
EQUITIES SLIDE, OIL AND TRAVEL STOCKS BUCK THE TREND (0841
GMT)
European equities are in negative territory as travel and
leisure and commodity related stocks fail to keep the Stoxx 600
index above water.
Today’s testimony from Federal Reserve Chair Jerome Powell
is keeping markets on edge, with investors wondering about Fed
tapering and possible central bank’s moves to respond to a
recent rise in interest rates.
Tech stock index is the worst sectoral performer
down 1.7% after U.S. Nasdaq drop overnight.
The Stoxx 600 index is down 0.3%, with oil and gas
and basic materials stocks, respectively up 1.3%
and 0.4%, boosted by a further rise in commodity prices.
Shares in UK travel and tourism companies such as British
Airways owner IAG and Tui are up around 7% on
hopes UK will come out of the pandemic quickly, while the
European industry index is up 1.2%.
Rational stocks are down 10% after lacklustre 2021
targets.
(Stefano Rebaudo)
*****
POWELL UNDER REAL YIELD PRESSURE (0828 GMT)
There has been one story in town and that is the steady
upward move in 'real', inflation-adjusted yields. It's been
taking a chunk out of some of the most favoured (and most
exorbitantly valued) assets - the S&P500 just posted the longest
losing streak since end-February, while bitcoin is down more
than 10%.
Tech slid heavily too last night in New York.
This morning though, world stocks have inched a touch
higher, led by ebullient commodities, and futures appear to be
setting up for firmer sessions across Europe and in New York.
Yet there is no denying markets are fearful - how serious is
this? And what will policymakers do?
After ECB boss Christine Lagarde said she was "closely
monitoring" the picture, German real yields eased a tad though
still at four-month highs. The wait is now on for Federal
Reserve chairman Jerome Powell's testimony to a Senate committee
to see if he can reassure markets -- yet again -- on the Fed's
dovish stance.
China's central bank has come through, pledging to support
the recovery, though in a "targeted" manner.
Meanwhile the dollar is lurking near six-week lows, hit by
the narrowing gap between U.S. and European real yields.
In other news, the United States has crossed the grim
milestone of 500,000 COVID-19 deaths.
In Britain, sterling is headed for $1.41, lifted by economic
reopening plans though data showing 5.1% unemployment, in the
last 2020 quarter, shows the poor state of the economy.
Still, Ryanair, Tui and British Airways-owner IAG are up,
among Europe's top stocks this morning. EasyJet said flight
bookings jumped over 300% and holidays bookings surged by more
than 600% week-on-week on Britain's reopening plans.
Key developments that should provide more direction to markets
on Tuesday:
-HSBC abandoned its profitability targets, unveiling a revised
strategy focused mainly on wealth management in Asia; Aviva
agreed to sell its French operations for 3.2 billion euros to
Aéma Groupe; HeidelbergCement sees a good start to 2021
-Final euro zone inflation
-Bank of Canada Governor Tiff Macklem speaks – 1730 GMT.
-Philadelphia Fed non-manufacturing business outlook survey
US auctions 2-yr notes
US consumer confidence Feb
UK 30-yr gilt auction
US corporates: Home Depot, Macy, Thomson Reuters, Allegheny.
(Sujata Rao)
*****
WAITING FOR POWELL (0628 GMT)
European stock futures are slightly higher on global
recovery hopes, but sentiment is wary ahead of today’s testimony
of Federal Reserve Chair Jerome Powell.
Most analysts expect Powell to reiterate Fed commitment to
keep its dovish policy, but investors are wondering what it may
take for the Fed to consider tapering and if the central bank
will respond to recent volatility in interest rates.
Rising interest rates and inflation worries drove Wall
Street in negative territory overnight, while strong commodity
prices propped up Asian stocks.
(Stefano Rebaudo)
*****
