Last checked at 
* European shares up 0.5%
* Banks, oil and gas outperform
* S&P, Nasdaq futures down
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markets.research@thomsonreuters.com
THE GREAT ROTATION (1107 GMT)
Even though global stocks rallied to record highs on the
Pfizer vaccine news on Monday, the underlying shifts was nothing
short of spectacular.
An MSCI gauge of equal weighted U.S. stocks outperformed its
market weighted counterpart by its second biggest margin this
year as investors stampeded out of the so-called pandemic
darlings of large-cap tech shares.
Chris Bailey, a strategist at Raymond James reckons it was
the best day ever for an equal-weighted S&P 500 stocks versus
market-cap weighted S&P 500.
Making up around a third of the benchmark index, U.S.
tech stocks have been the ultimate pandemic beneficiaries,
especially so-called FANGMAN - Facebook, Apple, Netflix, Google
, Microsoft, Amazon and chipmaker Nvidia.
But Monday's moves has major implications for funds who
have chased large-cap growth stocks or mega-cap technology
shares this year as a rollout of the vaccine would mean further
gains for beaten down bank or travel shares at the expense of
the tech majors.
And what will be a key indicator for that? Rising yields in
the bond market or growing expectations of lesser monetary
easing in the coming months.
(Saikat Chatterjee)
*****
ANY QUESTIONS ON VACCINE? (1028 GMT)
After yesterday's euphoria, the mood on markets is much more
measured today as investors try to put into perspective the
possible breakthrough in the fight against COVID-19 following
the promising update from Pfizer and its German partner
BioNTech.
Citi analysts say they have been flooded with questions
about the vaccine and to meet the growing need for information
they sought to provide answers to the most pressing doubts.
Here's a summary:
1) How confident should we be in light of Pfizer/Biontech
interim data? "The reported 90% plus reduction in symptomatic
infection is clearly at the very top end of investor
expectations.... comments on adverse events, although light on
detail, are reassuring."
2) What are next steps? "We anticipate US filings with the
FDA as soon as late November... This allows for a December 2020
FDA panel and potential EUA issuance before year end, with
similar timelines ex US."
3) What are the risks to timelines and outcomes? " The three
clear risks are safety, efficacy in subgroups and distribution."
4) Will other vaccines prove equally effective? "The PFE/
BNTX data further increases our optimism for competing vaccines,
with AZN and Moderna interim data expected this month."
5) When will government scale back public health measures?
"Scaling back requires prior vaccination of key workers, elderly
and vulnerable. 3Q21 seems a reasonable best case estimated for
material scale back" of public health initiatives.
6) Should I be concerned over durability of immunity or
escape mutations in the virus? "The durability of protective
immunity is unknown although it is hoped it reaches at least a
year."
7) Can an we eradicate SARS-CoV2 as we have smallpox and
largely polio? "Eradication seems unlikely and would require a
room temperature stable vaccine."
(Danilo Masoni)
*****
THE VACCINE AND REAL YIELDS (0959 GMT)
The past month has seen quite a turnaround in "real",
inflation-adjusted yields in the United States and Germany, with
the former decisively flipping higher than its European cousin.
Real yields -- bond returns after taking inflation into
account -- are up some 20 bps since Oct. 1 in the United States.
But across the Atlantic, real German 10-year yields fell 20 bps
as combo of renewed coronavirus lockdowns and the promise of
more ECB stimulus continued to pressure inflation, economic
growth and bond yields.
Pfizer's vaccine breakthrough may exacerbate the divergence.
Markets post-election had been leaning towards additional
action by the U.S. Fed, possibly by purchasing more longer-dated
bonds, to compensate for a smaller fiscal package. Now, a
vaccine could deliver enough of an economic boost to make Fed
action unnecessary. That shift lifted U.S. Treasury yields 10-12
bps across the curve on Monday.
German nominal yields rose too on the vaccine news and
should keep doing so if more cash moves into stock markets
dominated by travel or banking companies. But with the ECB --
unlike the Fed -- expected to expand bond-buying next month,
yields will likely stay capped.
The ECB won't be too dismayed at the divergence. If higher
real yields draw more investors into the dollar, it could well
short-circuit forecasts for a stronger euro, which would have
complicated its desperate battle to lift inflation.
(Sujata Rao)
*****
BACK TO REFLATION TRADE? (0930 GMT)
The reflation trade was off a few days ago on expectations
of smaller than hoped U.S. stimulus package, but yesterday’s
announcement of an effective vaccine changed the picture.
“Reported progress on a vaccine and the decisive outcome of
the U.S. elections materially reduce the two biggest tail-risks
for markets, which bodes well for the reflation trade,” Emmanuel
Cau, Head of European Equity Strategy says.
This “could give legs to the rotation out of relative safe
havens, bonds, cash and Growth, into riskier assets,” he adds.
“Global recovery is tracking, led by China and U.S., despite
European activity likely to contract in Q4 due to new
lockdowns.”
Barclays adds further to its pro-Value and Cyclical tilt, by
upgrading Consumer Discretionary (UW to OW), at the expense of
Tech (MW from OW) and Consumer Staples (UW from MW). Regionally,
Europe and emerging markets should benefit the most from the
broadening in the reflation trade.
Barclays assumptions include a split Congress, but the
battle for the U.S. Senate is not over yet as two runoffs will
take place in January 2021 in Georgia.
Democratic candidates face uphill battles, but this vote
will likely decide whether Democrats can win seats they need to
gain control of the Senate.
Republicans are currently on course to win 50 seats in the
100-seat chamber while Democrats have 48. If the chamber has a
50-50 tie, Vice President-elect Kamala Harris would have the
deciding vote.
(Stefano Rebaudo)
*****
OPENING SNAPSHOT: HARD TO GET EXCITED (0854 GMT)
After yesterday's slew of double-digit jumps, European
bourses are struggling to pick a direction this morning.
After opening in positive territory the pan European STOXX
600 index has turned lower, last trading down 0.1% on
the day as trading remained choppy.
The travel and leisure index has made an attempt to
extend yesterday's gains to rise more than 1% at some point but
it later turned negative as profit taking kicked in.
Banks, oil & gas and real estate stocks are holding on to
early gains and are all up more than 1% to lead sectoral gainers
in the region.
In terms of single companies, the biggest gainer is shopping
mall operator Unibail-Rodamco-Westfield, whose shares soar 25%,
after shareholders reject a planned rights issue.
On the other hand, lockdown star Delivery Hero is
the top faller, last down more than 6%.
Here's you snapshot of the STOXX 600 in the first 30 min of
trading:
(Joice Alves)
*****
ON THE RADAR: ADIDAS, HENKEL, PERSIMMON (0745 GMT)
After yesterday's euphoria, investors are showing mixed
feelings this morning and are turning more cautious with
European stock futures trading lower earlier this morning but
slowly picking up from lows.
Unemployment rate in France, the euro zone's second-biggest
economy, rose to 9% in the third quarter from 7.1% in the
previous quarter. While layoffs in Britain hit a record high
during the third quarter as redundancies rose by a record
181,000 to reach an all-time high of 314,000.
On the corporate front, German sportswear firm Adidas
expects sales to return to growth in China in the
fourth quarter but predicted an overall sales decline similar to
that reported in the third quarter. Adidas stocks are down 2.4%
in pre market trade.
Speciality steelmaker Voestalpine reported its
fourth consecutive quarterly loss, but said a gradual recovery
has begun.
German consumer goods group Henkel expects the
pandemic to weigh on its results for the final three months of
the year, as it reported organic sales growth of 3.9% for the
third quarter.
Shares in German logistics group Deutsche Post
are down 2.4% in early trade after results. The company said it
is working on securing the capacity it needs to handle a big
rise in ecommerce over the Christmas season.
Shares in Thyssenkrupp are down 4.5% in early
trade after a press report says the group is in talks with the
German government over steel aid of more than 5 billion euros.
On a brighter note, British homebuilder Persimmon
declared another interim dividend of 70 pence per share and said
it was fully sold up for the current year as it benefited from
firm selling prices and strong demand for its new build homes.
Premier Foods raised its full-year trading profit
outlook and said it expects higher demand for its brands due to
the recent government restrictions on eating out.
German software company Teamviewer said demand for
its remote connectivity was normalising after a surge driven by
the coronavirus pandemic, but it still nudged its billings
guidance higher for the year.
Nordex stocks are up 3.4% in early trade after the
company said it expected 2020 sale to rise by a third.
Shareholders of Unibail-Rodamco-Westfield have
voted against a planned 3.5 billion euro rights issue, the
shopping mall owner said.
(Joice Alves and Stefano Rebaudo)
*****
MORNING CALL: VACCINE HANGOVER ( 0630 GMT)
After hitting an 8-month high yesterday as investors stormed
to equity markets to play the Biden win trade and a positive
COVID-19 vaccine update from Pfizer, futures are pointing to a
lower open this morning.
"Having sprinted out of the blocks on Monday, stock market
reaction today looks set to be slightly more tempered, as we
look to open lower, as yesterday’s sugar high starts to wear
off," Michael Hewson, chief market analyst at CMC Markets UK.
Investors will also keep their eyes on France's and UK's
unemployment numbers, as well as on Germany's ZEW economic
sentiment data, all out this morning.
Financial spreadbetters at IG expect London's FTSE to open
42 points lower at 6,144, Frankfurt's DAX to open 141 points
lower at 12,955 and Paris' CAC to open 65 points lower at 5,272.
(Joice Alves)
*****
