Last checked at 
* European shares rebound, up 0.%
* German Q4 GDP growth revised up to 0.3%
* Fed's Powell pushes back on inflation worries
* Telecom Italia shines on outlook, tax boost
* Futures point to muted start on Wall Street
Feb 24 - 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
WHEN INFLATION IS NOT SO BAD FOR EQUITIES (1341 GMT)
Let’s put it simply: inflation might drive real rates higher
triggering a stock multiple compression but a stronger economic
growth would push multiples the other way round.
So, we should know what the net impact is going to be.
In their inflation upside surprise scenario BofA analysts
see the Stoxx 600 at 425 in Q3 and at 390 year-end,
with potential gains for the index being capped.
They do see subdued inflation in Europe, however. In the
U.S., core inflation is expected at 2% or above by Q2 but it
could “surprise to the upside.”
In their central scenario the Stoxx 600 should have a
further 8% upside to 440 by early Q3, followed by a fade to 410
by year-end, as growth momentum normalizes.
Stoxx 600 analysis suggests a 4% pullback for every 50bps
rise in the Euro area GDP-weighted 10-year real bond yield.
Inflation would help businesses with high volumes and fixed
costs such as food retail, as well as some regulated utilities,
in addition to banks and insurers if a rise in consumer prices
is followed by higher bond yields.
While it would pressure profit margins for companies with
low pricing power due to high competition which will suffer from
higher raw materials costs.
BofA mentions shares in Siemens, Sandvik
, KION, ING, Nordea, BBVA
, Legal & General, Generali, Terna
, Enel and SSE likely to benefit from
rising inflation.
(Stefano Rebaudo)
*****
THE LOST EUROPEAN YEAR (1128 GMT)
Exactly one year ago, we had a taste of what would have been
the COVID-19 impact on markets.
On a Monday on Feb 24,2020, nearly $474 billion was wiped
off the value of European stock markets as investors for the
first time reassessed the likelihood of the coronavirus outbreak
turning into a pandemic.
As Italian cases shot up, Milan shares slumped 5.4%
marking their worst day since mid-2016 after Italy reported at
least six coronavirus deaths.
In the U.S. that day, amid the surge in coronavirus cases
outside China, the benchmark S&P 500 lost $927 billion of its
value in one day.
That was just the beginning of the fall, which deepened in
March. Yet, in 12 months stock markets bounced back remarkably,
with the S&P 500 up about 20% since Feb 24, 2020, while the
STOXX 600 is just where it was one year ago.
"Who would have guessed the path of both life and markets
over this last 12 months," writes DB's Jim Reid.
What can the past 12 months teach investors?
As the pandemic is still evolving, Reid says, better to be
"humble about our forecasts" as volatility could be high.
"One thing I feel most confident of is that this isn’t going
to be a dull low volatility year. I suspect we are in a bubble
in certain places, that stimulus cheques will provide more fire
to that at some point but that risk assets are going to be
constantly buffeted by the risk of higher yields and inflation
regardless of whether it has any structural roots or not".
(Joice Alves)
*****
ANY BUYING OPPORTUNITY AMONG BANKS? (1105 GMT)
European bank stocks staged quite a rally in the last
months, supported by reflation trade and low valuations.
Now that the valuation gap seems to be closed are there any
good bargains around?
Not much in the euro zone, as “inflation is expected to lag
other developed markets, with banks suffering revenue pressure
from negative rates and weak demand,” according to Berenberg.
Its top pick is ING.
UK is interesting as investors’ patience should be rewarded
via attractive near-term yields, given the UK regulator’s
favourable stance – namely avoidance of negative interest rates
-- versus eurozone peer.
Top picks are Barclays and NatWest.
Nordic are the best due to "a less penal monetary policy."
Nordea and DNB are offering the most value
with the latter benefiting from the fact that Norway is likely
to normalise interest rates more quickly than other countries.
The sector in Europe trades at around 9 times 2022 EPS
consensus estimates, in line with the historical average,
suggesting that consensus upgrades are needed to drive further
outperformance.
(Stefano Rebaudo)
*****
GERMANY VS BRITAIN (0842 GMT)
European shares open mixed with a strong pound dragging down
the FTSE, while upbeat German GDP figures helps to lift the
pan-European index.
Stronger-than-expected growth in Germany's economy pushed
the Dax up 0.5% and the STOXX 600 0.2% higher, with the
travel and leisure index rising 0.8%
Strong exports and solid construction activity helped the
euro zone's largest economy to grow 0.3% in the final quarter of
last year.
Going on opposite direction, Britain's blue chips
fall 0.6% as the stronger pound, which rose to $1.42 for the
first time in three years, weighed on exporters.
In terms of single stocks, the top mover is Telecom Italia
, with share jumping 6.6% after results.
Italy's biggest phone group said it expects profit and sales
to stabilise this year after a difficult 2020.
(Joice Alves)
*****
MORNING BID: CAREFULLY, PATIENTLY, SLOWLY (0800 GMT)
That was effectively the message from Federal Reserve Chair
Jerome Powell to investors fretting that an inflation explosion
in coming months will continue to drive up bond yields.
His message only calmed markets a tad however, with 10-year
U.S. Treasury yields holding just shy of one-year highs and
stock markets resuming their fall. As tech continues to get
clobbered, Asian stocks fell nearly 2% overnight, with China and
Hong Kong leading the way lower.
Powell's words didn't help the tech-heavy Nasdaq as
investors continued rotating into cyclicals but the S&P500
managed to snap a five-day losing streak, reversing a 2.3%
intraday fall which was the largest so far this year.
But European equities look set for a shaky start. Retail
darlings Bitcoin and Tesla are firmly entrenched in bear market
territory.
Signs of reflation trades elsewhere too, with copper at
9-1/2 year peaks, the Australian dollar scaling a 3-year high
and Japanese ten-year bond yields firmly perched at a November
2018 high.
German Bund yields have so far posted their biggest monthly
jump in three years.
Key developments that should provide more direction to markets
on Wednesday:
-Germany's economy grew by a stronger-than-expected 0.3% in Q4
2020
-New Zealand's central bank tempered policy tightening
expectations
South Africa presents April 2021-March 2022 fiscal year budget
U.S. Treasury sells 2-year, 5-year notes
German 10-yr Bund auction
US new home sales Jan
-Lloyds reported a sharp profits fall for 2020 but resumed
paying a dividend; Europe's biggest hotel group Accor reported
an annual loss; consumer goods maker Reckitt Benckiser posted
the strongest sales in its history last year.
-U.S. corps: Eaton Vance, Lowe’s, Office Depot, Apache, Nvidia
(Saikat Chatterjee)
*****
MORNING CALL: EUROPE SET FOR SOFTER OPEN (0635 GMT)
European bourses are seen opening lower, mirroring Asia's
markets, which fell sharply overnight, as recent gains in U.S.
Treasury yields put lofty equity valuations under pressure even
as bond markets stabilised.
Fed's Chairman Jerome Powell on Tuesday did not seem too
perturbed by a selloff in Treasuries that has driven 10-year
yields up by 40 basis points this year, telling Congress it was
a statement on the market's confidence in the pandemic recovery.
Looking ahead, Germany's Q4 GDP number, out at 0700 GMT, is
expected to confirm a 0.1% expansion.
(Joice Alves)
*****
