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* STOXX 600 down 1.1%
* Wall Street futures in the red
* Vaccine shortage weighs on Europe
* Retail vs hedge fund battle carries on
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VALUE STOCKS TO BET ON (1254 GMT)
The growth-versus-value debate is going on while the latter
continues to be overlooked by investors as virus worries dampen
risk-sentiment.
“We have argued that a combination of a strong economic
recovery, rising inflation and higher bond yields should provide
a supportive backdrop for reflationary trades -- e.g Financials,
Value and Cyclicals over Defensives, Quality and Growth,” Morgan
Stanley says.
The reflation trade paused in 2021 on pandemic worries, but
“we think this is temporary,” it adds.
Relative valuations of value versus growth are close to
all-time lows (see charts below).
The investment bank flags names “with interesting entry
points where the weight of Cyclicals vs Defensives in Multiple
Appearances is at the lowest ever level.”
Overweight-rated stocks that are cheap versus history and
are viewed as disruption beneficiaries include Sanofi,
Amundi, Evonik, Johnson Matthey,
Bouygues, Norsk Hydro, ArcelorMittal,
Anglo American, SSE and EDF .
Besides, “it is notable that relative earnings revisions of
Value vs Growth are at their highest level in over three years.”
So MS screens for cheap stocks with the best EPS momentum,
with Tesco, Total, LafargeHolcim,
HeidelbergCement, Faurecia, Johnson Matthey,
OMV and Santander cheapest amongst that list.
(Stefano Rebaudo)
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LOCKDOWN RESILIENCE (1216 GMT)
You wouldn't think so looking at euro zone blue chips (STOXX
50E) losing 0.9% but there was some really good news earlier on
for the bloc.
Germany, France and Spain all reported better than expected
economic outputs in Q4 despite the pandemic.
We spoke to S&P economists shortly after the data was
released and it's fair to say that they were quite upbeat for
Europe's prospects in H2 2021, provided the "race between
mutation and vaccination" is won by the latter.
Among the growth drivers are the EU's recovery fund and the
ECB's massive monetary stimulus, but also the fact that the new
round of social restrictions are proving less of a drag than
once feared.
"Lockdown 2 and 3 are not as damaging to the European
economy than Lockdown 1.0", Sylvain Broyer, chief economist for
EMEA tolds us, referring to today's GDP figures.
He later on added that the timing of the recovery was bad
news for populist parties in Germany and in France which have
general elections in September 2021 and in the spring of 2022
respectively.
(Julien Ponthus)
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BE AWARE OF BUBBLE SIGNS (1128 GMT)
The perfect mix for a financial bubble - cheap credit, easy
money and excessive enthusiasm - is making investors wonder
whether financial markets have entered one.
Last week, amid a retail trading frenzy, shares in GameStop
soar 2500% year-to-date at one point, BofA's weekly flow
data shows.
"Retail exuberance raises warnings around the emergence of a
risk bubble," Barclays strategists say.
There is a number of red flags in the market, with "visible
signs of excess in financial markets as loose monetary policy
and record-low bond yields push market participants to take on
more risk," writes Frédérique Carrier, head of investment
strategy at RBC Wealth Management.
There are concerning similarities with previous market
bubbles, notes RBC, recalling that the Nasdaq went up more than
fourfold from the beginning of 1995 to early 2000, before the
bubble burst in 2002, with the index losing more than 70%.
However, even if the FOMO, fear of missing out, is driving
investment choices rather than a rational assessment of the
value of an investment, looking at the overall indexes, there is
little evidence of a systemic bubble yet, Carrier says.
"It would be remiss to ignore these warnings and we repeat
our call for vigilance. But we see less evidence of bubble
territory when we look at stock market valuations."
Ipek Ozkardeskaya, senior analyst at Swissquote Bank,
reminds us of a very true point on speculative bubbles:
"Normally, we need to be very carefully with the use of
‘speculative bubble’. A bubble is not a bubble until it bursts,
as investors give the market moves the benefit of doubt."
Some say that the vaccine-induced revival of the economy and
generous stimulus from the U.S. are expected to provide support.
"If the sharp price rise is explained by fundamentals," BofA
strategists argue, you can't say there is a bubble about to
burst.
So if until the burst it is premature to talk about a stock
market bubble, it is perhaps not too soon to spot clear
evidences in single companies.
"There is little doubt that the short squeeze in GameStop
shares is now a speculative bubble," Ozkardeskaya adds.
"Fundamentally, there is little that justify the rise in its
stock price other than a group of retail traders willing to go
against Wall Street wolves".
(Joice Alves)
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VACCINE: THE BUMPS ALONG THE WAY (1033 GMT)
Vaccine rollout timeline is back in the spotlight after
recent delays weigh on risk sentiment in financial markets.
Credit Suisse reduced its forecast for 2021 vaccine capacity
to 5.7 from 6 billion doses, but it points out that the actual
vaccination will not be able to reach the output level.
"Our COVID-19 Vaccine Model implies that by mid-2021 the
U.S. will have capacity to give just under half of its
population 2 doses of vaccine, and a similar proportion for
Europe/developed markets could receive on average 1.5 doses of
vaccine per person," it says in a research note.
Actual vaccinations may be lower due to potentially
inefficient distribution systems, vaccine wastage, vaccine
hesitancy of individuals, it adds.
Besides, "due to clear challenges to scale up the supply
chain" it sees around 70% of total annual capacity coming online
in the second half.
CS also flags some “critical catalysts” for the prospective
vaccine rollout.
Efficacy data for Johnson & Johnson’s vaccine is
expected to be published next week and would add 1 billion doses
of capacity in 2021.
Approval of AstraZeneca/Oxford vaccine in Europe will also
be crucial, but the challenges of manufacturing scale up mean
that supply is likely to be limited until later in Q1 and
accelerating from Q2.
(Stefano Rebaudo)
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OPENER SNAPSHOT: "WHAT A WEEK" (0840 GMT)
European shares kick off Friday broadly in negative
territory with the pan European index on track for its worst
week since late October.
As Deutsche Bank's strategist Jim Reid puts it, "what a week
we’ve had. I’ve seen some crazy things in my 25 year plus career
in financial markets but I think this week will end up being
right up there with when I hang up my banking boots," he said
about the r/wallstreetbets trading movement, which saw home
traders ganging up in the online forum to force hedge-funds to
reverse short positions.
Not surprisingly, this morning stock markets in Europe are
on the back foot after the retail trading frenzy gripped Wall
Street this week. Concerns for a new strain of the coronavirus
in Europe is also denting sentiment.
In a busy morning for corporate news with a slew of earnings
reports including Ericsson (up 7%) and Swedish
fashion retailer H&M, it was the IPO of classic boot
brand Dr. Martens that caught traders fingers, attracting bumper
demand in a sale valuing the company at more than $5 billion.
Shares at the shoe maker are up 23% in the London Stock exchange
debut.
The STOXX 600 is down about 1%, with the banking sector
leading the losses down 1.8%.
(Joice Alves)
******
MORNING CALL: EUROPE SET FOR WORST WEEK SINCE OCTOBER (0646
GMT)
European stock futures are pointing to a Friday in the red,
setting the STOXX 600 index for its worst week since
late October.
A Wall Street retail-trading frenzy this week and a
liquidity squeeze in China has unnerved investors and is
weighing on frothy markets. Both European and U.S. futures are
falling more than 1%.
Wall Street has been gripped by a coordinated assault by
small traders organising over online forums to force hedge-funds
to reverse short positions.
(Joice Alves)
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