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* European Stoxx index down 0.1%
* Fed soothes inflation fears
* U.S. equity futures edge up
May 26 - 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
ECB: MINI-TAPERING WORRIES (1145 GMT)
Now that the ECB persuaded markets that a proper bond-buying
tapering or the so-called ‘June hawkish mistake’ is unlikely,
investors focus switches on a possible ‘mini-tapering,’ which
means getting back to the first-quarter pace of bond purchases.
In March, the ECB decided to accelerate the pace of the
Pandemic Emergency Purchase Programme (PEPP) to stop any
unwarranted rise in debt financing costs.
“The longer the ECB sticks to the current pace of purchases,
the longer it will take for real yields to start departing from
their current levels, which are still close to historical lows,”
Unicredit analysts say.
“Every statement that refers to central bank purchases under
the PEPP is likely to immediately move real rates in the Bund
market,” since “breakeven rates appear to be confined within a
very tight range,” they add.
UBS sees a possible "dovish surprise.”
“We believe that markets are underestimating the size and
duration of policy support from the ECB (even after PEPP ends),
with front-end rates pricing more than a 10bp hike by end-2023,”
UBS analysts say.
After Villeroy de Galhau comments, Citi says
the European central bank “is not and will not be ‘structurally
less dovish’ than the Fed.”
According to BofA's forex and rates sentiment survey, 40% of
fund managers surveyed expect the ECB to maintain the pace of
purchases. Another 40% sees a reduction back to the Q1 levels.
(Stefano Rebaudo)
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DIY HEDGING (1100 GMT)
How do you protect your stock portfolio in 2021?
Vincent Deluard, a strategist a StoneX, just published a
report in which he takes the view that "traditional hedges are
expensive or inefficient, or both".
While the recent fall of bitcoin has made many investors
reluctant to touch the crypto currency, what are the options
available?
"Long-term Treasuries, the ultimate risk-off asset of the
past decade, are positively correlated to stocks for the first
time in 15 years", Deluard notes, adding that gold, the yen and
the Swiss franc depreciated when stock markets fell.
Now, bearing in mind that the main risks for 2021, apart
from a general sell-off of course, seem to be inflation, rising
yields and growth and tech stocks derating, what should an
investors do?
Deluard believes in a barbell mix of cyclicals (financials,
commodities, energy stocks) coupled with Latam and Japanese
stocks and gold.
Here's a chart which shows how risk-off assets also lost
value when stocks fell in 2021:
(Julien Ponthus)
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U.S. STOCK VALUATIONS FACE HEADWINDS (1030 GMT)
With U.S. stock valuations at historically high levels there
is some concern creeping in about how sustainable that can be.
Goldman Sachs has taken a fresh look at the issue and while
it believes current valuations are roughly fair, given the macro
backdrop, it sees headwinds arising on the horizon.
"The macro support for equity valuations is set to weaken
going forward," they say. "We are forecasting that bond yields
will rise steadily and the pace of improvement in the jobs
market will ease as we move into 2022 and beyond".
According to the U.S. investment bank, unusually low bond
yields, low inflation and a rapidly improving labour market are
conditions associated with unusually high valuations.
On the other hand, rising yields and easing improvements in
the labour market tend to erode the macro support to valuations.
"If the market is unwilling to view the recent rise in
inflation as transitory or the recent slowing in jobs growth is
more persistent than we expect, those valuation headwinds could
come earlier and prove stronger," they caution.
(Danilo Masoni)
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EQUITIES: ANOTHER CHOPPY SUMMER? (1003 GMT)
Equities do not show a clear trend and continue to be hooked
to economic data.
That’s what has happened and what is probably going to
happen through the summer, according to Berenberg analysts.
Strong results failed to boost the S&P500 index as the
market has already priced in the recovery in corporate earnings,
while the big unknown remains inflation when central banks will
start a bond-buying tapering.
Volatility is here to stay because “the Fed and the markets
are unlikely to know better, until late summer, how temporary
the recent sharp rise in inflation will really be,” they say.
“Over the next few weeks, the market will again focus more
on economic and inflation data,” they add.
The put-call ratio – the higher (lower) the ratio, the more
cautious (optimistic) are investors – shows market nervousness.
Sentiment among U.S. private investors deteriorated
somewhat, but a bull/bear spread over 10 pp “investors remain
optimistic overall.”
(Stefano Rebaudo)
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WHO IS PAYING DIVIDENDS (0902 GMT)
In one year the pandemic wiped out almost four years worth
of dividend growth, but there has been signs of improvement in
Q1 with dividend payouts falling, but at their slowest pace in
one year, according to Janus Henderson.
The firm has a better outlook for the rest of the year and
now expects $1.36 trillion in dividends in 2021, up 8.4%
year-on-year on a headline basis.
"Soaring commodity prices propelled mining dividends higher
and a number of banks restarted payouts, boding well for the
months to come", says the firm in its global dividend index
report.
Dividend across the world fell 2.9% in Q1 on a headline
basis to $275.8 billion. And in the first three months of the
year, less than 20% of the companies cut their dividends, far
fewer than the 34% last year.
North America has seen dividends fall far less than other
parts of the world, with Canada delivering record payouts in Q1.
But things weren't bad elsewhere either.
Payouts in Europe (excluding the UK) rose year-on-year 10.8%
on a headline basis to $42.5 billion, boosted by catch-up
payments from Scandinavian banks and Switzerland's
"disproportionate contribution in Q1".
In Britain, over the last twelve months, 57% of UK companies
in Janus Henderson index made cuts. UK dividends continued to
feel the effects of the oil companies’ cuts in Q1, "but there
are signs of revival here too".
The headline total for UK dividends rose 8.1% in Q1 thanks
to a number of extra payouts and special dividends.
And here is your list of top dividend payers:
(Joice Alves)
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M&S: A TRICKY MORNING CALL (0815 GMT)
About half an hour before the London stock market opened,
things started to look quite grim for the shares of Marks &
Spencer.
Most pre-market calls from brokers saw the British retailer
losing ground with the group reporting an 88% slump in full-year
profit, a collapse in clothing sales and a very big question
mark on its dividend.
Some calls, which seemed a tad contrarian, saw a 3% to 5%
rise, highlighting a strong start to new year, turned out to be
the most accurate.
The M&S shares quickly rose to the top of the STOXX 600 and
are now, at 0831 GMT, the second best performers, gaining 4.3%.
Looking at the glass half full, one can see that M&S
overall trading for the first six weeks of the 2021-22 financial
year has been ahead of the comparable period two years ago.
But there's plenty of scepticism out there.
"Marks & Spencer has had plenty of false dawns over the
years" commented analyst Adam Vettese at eToro, highlighting the
risk the retailer fails in its attempt to boost its clothing
division.
It's also fair to say that given its performance in the last
six years or so, the stock has a lot of catching up to do.
It is still 30% below its pre-COVID 19 peak and 70% below
its 2015 highs.
(Julien Ponthus)
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STOXX BELOW PEAK, BANKS DIP, SOME M&A ACTION (0740 GMT)
It seems the dovish-sounding remarks from central bankers in
the U.S. and Europe are keeping investors in a state of ease but
the momentum behind this year's recovery rally has faded.
The STOXX 600 is just above parity in early deals,
up 0.2%, helped by gains in growth plays like the big luxury
groups and tech, while banks and other cyclical plays look out
of favour, as bond yields head south.
A stronger than expected guidance is lifting Marks and
Spencer while some sparse M&A action is adding some
pepper to the otherwise muted session.
Takeovers offers are lifting shares in UK's Spire Healthcare
and Vectura are up 25% and 31% respectively,
while Italian bank stocks are outperforming on expectations of
possible dealmaking.
Here's your opening snapshot:
(Danilo Masoni)
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WHEN THE HAWKS STEP FORWARD (0648 GMT)
World stocks may be taking comfort from signs that central
banks will keep the stimulus taps open but the chorus of hawks
making the case against is on the rise.
And so New Zealand's dollar is up 1% this morning after the
country's central banks signalled at least one quarter point
hike by September 2022.
Wellington's decision comes at a time when Federal Reserve
policymakers have begun to acknowledge they are closer to
debating when to pull back some of their crisis support. The
shift in tone is a change from just a month ago when Chair
Jerome Powell said it was "not yet" time to even contemplate
having that conversation.
Markets, for now, are ignoring the shift in central bank
speak with Asian stocks a sea of green in holiday-stricken trade
while European and U.S. stock futures broadly higher.
Asian stocks were a touch firmer as a daily currency fixing
by the Chinese central bank to near three-year highs was taken
as a sign of optimism by investors.
In currencies, the dollar struggled near its lowest levels
this year thanks to a flying kiwi and a stronger yuan.
Bond markets also remained sanguine on the outlook of
monetary policy. Fed’s vice chair Richard Clarida’s comments on
Tuesday to engineer a "soft landing" as stimulus is withdrawn
and keep a lid on inflation kept Treasury yields within the
well-worn established ranges since March.
In the euro area, comments from ECB board member Fabio
Panetta that the bank should not reduce the pace of asset
purchases after its June 10 meeting is keeping German Bund
yields below last week's 2-year high.
A weaker dollar pushed gold prices above the key
psychological level of $1,900 per ounce, while Bitcoin
stabilised around the $40,000 mark after a roller coaster ride.
In corporate news, Volkswagen's board agreed Lamborghini
would remain part of the company after it received a 7.5 billion
euro offer for the supercar brand. Britain's competition
regulator is reviewing AstraZeneca’s planned $39 billion
takeover of U.S.-based Alexion on whether it could reduce
competition in Britain or other markets.
Key developments that should provide more direction to
markets on Wednesday:
- British Prime Minister former advisor Dominic Cummings to
give testimony on the UK handling of the pandemic.
- Swedish Riksbank Financial Stability Review.
- Central bank speaker corner: France’s Villeroy, Canada’s
Lane, Fed’s Quarles.
- Data: French business confidence, manufacturing
confidence, US Mortgage Applications
(Saikat Chatterjee)
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EUROPE SEEN MARGINALLY HIGHER (0533 GMT)
European shares are set to rise slightly today following
gains in Asia on the back of comments from Fed officials
reaffirming a dovish monetary policy stance.
Futures on the euro STOXX 50 and DAX
indexes are both rising 0.4% while FTSE futures are
trading just flat. U.S. futures also pointed to slight gains on
Wall Street later on after marginal declines on Tuesday.
(Danilo Masoni)
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