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A HUGE LOCKDOWN-TRIGGERED RISK-OFF MOVE (1015 GMT)
What on earth just happened?
In a matter of minutes the dollar surged, the euro fell and
the yields on government bonds dropped.
Germany's bund lost 5 basis points to -0.330% and European
banks fell over 2% while European equity markets, which were
broadly higher, turned sharply negative.
The culprit is once again COVID-19 which has forced Austria
into a new lockdown.
"Its the German health minister," said Mikael Jacoby head of
continental European sales trading at Oddo in Paris, noting that
Jens Spahn said Germany's coronavirus situation was so grave
that a lockdown couldn't be ruled out.
Also shaking markets was Austria announcing it will become
the first country in western Europe to reimpose a full
coronavirus lockdown.
"There's going to be some red today", Jacoby warned, noting
that it was also a bid day in terms of expiries.
(Julien¨Ponthus)
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A NEW ALL-TIME HIGH IN SIGHT (0848 GMT)
A rise in oil shares and miners sent European equities up
and within striking distance of their all-time high.
The Stoxx 600 is up 0.4%, only one point from
another record, with the basic materials stock index
leading gains up 1.6%, and oil and gas stocks up 0.8%.
The French CAC 40 benchmark reached another record at 7183
points.
A report that a smelter in China had stopped production
after an explosion drove industrial metals higher.
Oil prices rose as investor bet that potential coordinated
releases by major economies of their official crude reserves may
have less of an impact on markets than expected.
However, risk sentiment is being kept in check as the
stronger than expected earnings season is about to end.
“A number of risk factors were increasingly piling up on the
horizon,” Deutsche Bank analysts said, mentioning also Covid
resurging cases across Europe and “some negative chatter about
President Biden’s build back better package.”
Kingfisher stocks are among the worst performers in
the Stoxx 600, down 4%, after company’s trading update.
Hermes shares are up 3.7%, after jumping more than
6% the previous day on market talk shares in the French luxury
group could potentially be included in Eurostoxx 50 index during
a December review.
(Stefano Rebaudo)
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WARNING: RATE RISES AHEAD (0808 GMT)
Charles Evans and Raphael Bostic, Fed governors from Chicago
and Atlanta respectively, are among the U.S. central bank's
doves. So, their remarks suggesting mid-2022 rate hikes
could be "appropriate" shows that the transitory inflation
narrative may be wearing a bit thin.
Their comments on Thursday came as data showed weekly
jobless claims now just a whisker above levels seen in March
2020, just before the pandemic hit. Jobless benefits rolls also
are at a 20-month low.
Still, all this failed to stop the equity juggernaut, which
saw the S&P 500 and Nasdaq closing at record peaks, lead by tech
and retail, both of which are sensitive to higher borrowing
costs. Wall Street futures point north, as are European bourses,
where French and German shares have notched record highs.
In Britain too, retail sales snapped a five-month streak of
falls to rise 0.8% in October, a bit more than forecast. Coming
the same week as robust inflation and employment figures, the
data may cement expectations for a December Bank of England rate
rise.
The equity gains bypassed much of Asia however. Tokyo rose
0.5% on the prospect of a fresh $490 billion stimulus package
but Hong Kong was dragged down by a 10% loss in Chinese
e-commerce giant Alibaba whose quarterly earnings
showed the impact of a regulatory crackdown.
Other notable movers? Bitcoin is headed for its worst week
in six months -- 20% below recent record highs. That despite
crypto miners raising funds and eyeing public listings.
Finally, the Turkish lira is licking its wounds after
Thursday's 11% fall triggered by a 100 basis point rate cut. It
has clawed back some 2% this morning but is down almost 50% so
far this year.
Key developments that should provide more direction to
markets on Friday:
-Japan to unveil record stimulus package, bucking global
tapering trend
-Unilever bags $5 bln deal with CVC for tea business
; Ryanair drops London listing, citing costs
-UK Gfk consumer confidence/retail sales
-German PPI +3.8% m/m, +18.4% y/y in October
-Ghana central bank meets
(Sujata Rao)
*****
IN THE BLACK AGAIN (0728 GMT)
European stock futures are well in positive territory along
with their U.S. peers after the Stoxx 600 index took a pause
yesterday, closing lower and breaking a six-day rally fuelled by
solid earnings.
Wall Street provided support as both the S&P 500 and the
Nasdaq hit closing highs overnight, even if they struggled to
shrug off hawkish inflation comments from a Federal Reserve
policymaker. Japan’s Nikkei rose on tech and energy
stocks, while Asian equities outside Japan declined.
Some uncertainty has crept in among investors as a more
robust than expected earnings season is about to end and worries
about possible new pandemic-induced restrictions across Europe
weigh on risk sentiment.
(Stefano Rebaudo)
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