* European STOXX 600 edges lower
* Retailers stocks lead gains up 1.1% after M&A headlines
* Autos down on supply concerns
* Marks and Spencer jumps on robust results
Aug 20 - 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
GOVERNMENT DEBTS DO MATTER (0935 GMT)
Central banks in a ‘whatever it takes’ mode to avoid the
adverse impact of the pandemic might have created the idea that
debt risk premium on government debts is something that matters
a lot less than in the past.
But this doesn’t seem to be the case as markets continue to
price fiscal risk, according to the economists from the
Institute of International Finance.
They adopt the definition of fiscal space they use in
emerging markets work, namely that of ‘market access,’ with a
particular focus on foreign flows, which they see “as a good
indicator of private-sector demand for sovereign bonds.”
“A simple scatter plot of sovereign bond yields versus gross
debt levels does not show much of a link between rates and debt
levels,” they say. But this happens because “differences in the
scale of QE, different recovery trajectories and diverse central
bank communications muddy the picture.”
Focusing on the eurozone, “a clear link between yields and
debt emerges, with higher yields for Italy and Greece versus
Austria, Finland and Germany,” they add.
Indeed, this correlation is up since 2012, the year that saw
“whatever it takes” by Mario Daghi, rising from 84% to 91% now.
Foreign flows, a proxy of private demand, were negative for
Italy and Greece in 2020 (see chart below), with the ECB
absorbing all of Italy’s debt issuance while the Fed bought just
half of the U.S. issuance.
(Stefano Rebaudo)
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STOXX FLAT, RETAILERS UP, AUTOS STILL LOWER (0721 GMT)
European stocks are in positive territory propped up by a
rebound in retailers after British supermarket Morrisons
agreed a takeover offer worth 7.0 billion pounds from U.S.
private equity group Clayton, Dubilier & Rice.
Concerns about the pandemic and the expected tapering of the
Fed's bond buying programme continue to weigh on sentiment.
As Deutsche Bank analysts puts it, nervousness about
possible tapering by the Fed along with a potential Chinese
growth slowdown “brought the narrative a long way from the
reflation hopes many had back in Q1.”
The Stoxx 600 index is flat, with retailer shares
leading gains up 0.8%, followed by oil and gas and utility
stocks, up around 0.4%.
Automotive shares, saddled by expectations of
further production cuts due to a semiconductor supply
bottleneck, are the worst performers down 0.9%.
Shares in Morrisons are up 4.6%.
Marks & Spencer stocks rise 10.9% after the company
lifted its profit outlook.
(Stefano Rebaudo)
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A LACKLUSTRE END TO A PAINFUL WEEK (0641 GMT)
It hasn't been a pretty week for equity investors - or many
others really.
The Delta variant keeps spreading, economies keep slowing,
China keeps going with its regulatory crack down. And on top of
that, Fed tapering remains likely this year - leaving some to
fear that Jerome Powell's team could deliver what they see as a
policy mistake, tapering into a slowing economy.
World stocks are set for a 2.5% weekly drop,
the Hang Seng tech index has tumbled 12% over the same
period - both suffering their worst such falls since February.
With Beijing just having passed a new personal data privacy
law - another plank in its push to regulate cyberspace -- Asian
stocks fell again. European futures
fare mixed, U.S. futures flag losses ahead.
Hopes that more stimulus from China could shore up sentiment
faded after Beijing's central bank left its benchmark interest
rate unchanged for a 16th consecutive month.
Predictably, the safe-haven dollar is enjoying all
this and scaling fresh 9-1/2 month peaks, inflicting some losses
on commodities. Oil is on track for a weekly loss of over 5%,
while global bond yields stayed subdued.
Now it's all eyes on the Fed's annual research conference in
Jackson Hole, Wyoming, next week, where Powell will give a
closely watched speech.
In the meantime, Germany said its economy is on track for a
lasting, probably stronger recovery in the third quarter driven
by lively domestic demand as markets fret over another
coronavirus wave rippling through the region.
It's pretty slim pickings on the corporate front.
British supermarket Morrisons is in focus after it
upended a take over bid from a consortium led by Fortress
Investment Group by agreeing to a higher offer worth 7.0 billion
pounds ($9.5 billion) from U.S. private equity group Clayton,
Dubilier & Rice (CD&R).
Irish construction material firm Kingspan reports a
record H1 profit, U.S. machinery maker Deere & Co posts
earnings later in the day.
Key developments that should provide more direction to markets
on Friday:
China passes new personal data privacy law
Japan consumer price falls narrow
Japan CPI July/retail sales
China Evergrande vows to resolve debt risks
New Zealand's Ardern extends lockdown
UK retail sales drop unexpectedly in July
German producer prices July
Earnings: Deere & Co, Footlocker
($1 = 0.7336 pounds)
(Karin Strohecker)
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EUROPE SLIGHTLY LOWER, RISK SENTIMENT IN CHECK (0533 GMT)
European stocks are poised to open slightly lower after
setting the worst session in a month yesterday as fears about
the economic impact of the spread of the Delta variant continue
to keep risk sentiment in check.
Wall Street gains in defensive and heavyweight technology
stocks overnight are providing some support.
Investors are also trying to assess Fed moves at the annual
conference in Jackson Hole, where the central bank is expected
to announce the tapering of its bond-buying programme.
Equities high valuations seem more vulnerable to tapering
worries than U.S. Treasuries that continue to rise boosted by
fading risk appetite.
(Stefano Rebaudo)
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