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* London outperforms euro zone
* EZ inflation at record high
* Diasorin tumbles on weak 2022 forecast
* Tech shares hit by Wall Street selloff
Dec 17 - 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
MORE ABOUT U.S. YIELD CURVE FLATTENING (1315 GMT)
As an inversion of the U.S. Treasury yield curve has
historically preceded recessions, recent curve flattening has
been under the spotlight.
An uncommon flattening might also suggest Fed is currently
making a hawkish mistake that could stifle economic growth.
Morgan Stanley analysts flagged that the 33 bps decline in
the spread between 10y and 2y Treasury yields over the last 20
days is the joint-second largest over the last decade. They say
they have two explanations for the move.
Long-term bond yields have been dragged lower, flattening
the curve by a lack of supply “with December a traditionally
quiet month for sovereign bond issuance, and the Fed are yet to
start the taper,” they argue in a research note.
“This reprieve is likely to be temporary, with January
usually a heavy month for the bond issuance at the same time as
the Fed starts to reduce its purchases,” they add.
Additionally, Omicron also had its impact as “yields have
shown a fairly significant negative correlation to the virus
count.”
The chart below shows the spread between 10y and 2y U.S.
Treasury yields.
(Stefano Rebaudo)
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CHOPPY MARKET AS EZ INFLATION HITS RECORD HIGH (1150 GMT)
It is confirmed: euro zone inflation surged to its highest
rate on record in November.
Eurostat said inflation in the 19 countries sharing the euro
rose to 4.9%, a year-on-year surge in line with an earlier
Eurostat estimate. But month-on-month, the increase was revised
down to 0.4% from a previously reported 0.5%.
The STOXX 600 reacted by briefly cutting some of its losses
before extending its fall on the day.
The final reading was far from being an “earth-shattering
piece of news, but any downside surprise on inflation is very
welcome at the ECB headquarters," says Matteo Cominetta,
economist at Barings Investment Institute.
He agrees with the ECB view that inflation in the EZ is
transitory. “With base effects and energy inflation abating,
next year should see a steady slowdown in euro area inflation,”
he says.
That should allow "the ECB an easier ride than the one other
major central banks got themselves into," he adds.
(Joice Alves)
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WHICH LONDON BANK WILL BENEFIT FROM BOE'S HIKE? (1035 GMT)
The FTSE 350 bank index is up a whopping
0.5%, while euro zone banks are instead down 0.5%, with
UK banks getting a boost from the Bank of England rate hike.
But which UK banks will benefit the most from the BoE's
decision to increase borrowing costs by 15 bps to 0.25%?
Here is a list from Jefferies:
"The news is positive for the banks, which, based on the
banks' static disclosures, Natwest is the most rate
sensitive of the banks and will expect the biggest uplift to '22
estimates," Jefferies analysts say.
Lloyds and HSBC follow next, both with an
estimated 1.2% uplift to net interest income (NII).
(Joice Alves)
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PULLING AWAY THE PUNCH BOWL (0840 GMT)
In central bank speak, this was a week when policymakers
decisively moved a step closer to unwinding their pandemic-era
stimulus from the global financial system. The Fed unveiled an
accelerated timetable for policy tightening, the Bank of England
surprisingly raised interest rates while the European Central
Bank also slightly reined in their stimulus and the Bank of
Japan dialled back emergency pandemic-funding.
Markets are not liking it one bit. A gauge of global stocks
is on track to post a weekly loss after posting its biggest
weekly rise since early February last week while volatility
gauges across asset markets on an upswing after declining
steadily in recent days, signalling growing angst. Safe-haven
assets like U.S. Treasuries and the Swiss franc are in demand.
Coupled with a raging Omicron variant with UK daily
coronavirus infections at their highest levels since the
pandemic began and disappointment on the Biden administration
unable to push through a $1.75 trillion spending plan before
Christmas, investors are bracing for a turbulent end to a busy
week.
And there is plenty more scope of unwinding to come.
Investors are unabashedly long stocks and technology stocks
betting that any policy unwinding would be gradual. Indeed, a
monthly BofA survey earlier this week showed that investors had
expected the Fed to raise interest rates only twice next year.
MSCI Inc.’s Asia-Pacific index is down for a fifth session
in six outings, with Chinese tech stocks sliding more than 2%.
U.S. and European equity futures are in the red after the Nasdaq
100 sank the most since September. Elsewhere, oil is lower for
the first time in three days and Bitcoin fell below the $47,000
level as central banks globally are prioritising the fight
against elevated inflation.
Key developments that should provide more direction to
markets on Friday:
Central bank speakers: Fed's Waller, ECB's Rehn
Gold vaults over $1,800 an ounce, a three week high
Russia central bank meeting
(Saikat Chatterjee)
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LONDON SHINES AS EZ BOURSES SLIDE (0835 GMT)
Amid a general gloom across global equity markets, the
highlight today is that London stocks are outperforming all the
other European bourses.
Blue chips and mid caps are up 0.3% and
0.1%, while the pan European STOXX 600 is down 0.2%,
with Frankfurt and Milan firmly in the red.
After the BoE gave UK banks a boost by raising interest
rates, London shares is getting some additional support from
data showing British retail sales rose faster than expected last
month.
For now, investors are shrugging off any potential political
instability after Boris Johnson's Conservatives lost control of
a parliamentary seat they have dominated for nearly 200 years,
following a series of crises and scandals.
(Joice Alves)
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EUROPEAN BOURSES SEEN LOWER TRACKING U.S. TECH (0735 GMT)
European futures are indicating a torrid start for local
bourses following the U.S. tech stocks fall after the
Fed's hawkish pivot, which knocked investors confidence.
Depending on how big the slide today will be, the pan
European index could yet still be on track for a second
week of gains, as stocks have regained some ground this week on
fading concerns about Omicron's severity.
London blue chips are on track for weekly losses,
despite the rally staged by banks after the BoE surprised the
market - once again - by raising its interest rates by 15 bps to
0.25%
In a busy week for central banks, the European Central Bank
cut stimulus further, while the Fed announced it will accelerate
tapering of its emergency bond buying programme and prepare to
raise interest rates more quickly next year.
(Joice Alves)
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