Last checked at 
* STOXX 600 up 0.2%
* DAX hits record high as auto surge continues
* Banks rally as yields resume upward move
* Fed expects growth surge but no rate hike
* Eyes BoE policy meeting
* Nasdaq futures fall over 1%
March 18 - 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
INFLATION WILL BE TEMPORARY, UNLESS… (1146 GMT)
No doubt inflation is a major issue for financial markets
which will feel the heat of price increases when economies
stalled by the pandemic kick back into growth.
The big unknown is how much markets believe the Fed when it
says it will be temporary.
"Two or three years from now I don’t think inflation is
going to be a structural phenomenon. I think the four Ds will
re-assert themselves, especially disruption and debt," according
to Robin Parbrook, Co-Fund Manager of the Schroder Asia Total
Return Trust.
The four Ds he mentions are "structurally deflationary
forces": demographics, disruption, disparity in income and debt.
But a switch to policies inspired by Modern Monetary Theory
(MMT) could be a total game changer and make inflation "a
structural issue".
"It may happen but is unlikely in the next 2-3 years,"
Parbrook believes.
MMT stipulates that countries which issue and rely
exclusively on their own currency don't need to rely on taxes or
borrowing for spending and that inflation is the only constraint
on money printing.
Critics of MMT believe that introducing MMT inspired massive
money printing would lead to hyper inflation.
(Stefano Rebaudo)
*****
BETTING ON SPIN-OFFS (1010 GMT)
For those worried about rising valuations, focusing on
value-enhancing corporate activity might be the way forward.
Barclays and Morgan Stanley seem to agree that this
currently might be a good way of being exposed to equities.
“The outlook for dividends, capex and M&A is favourable,
although higher taxation is a medium-term risk,” Barclays
analysts say in a research note.
"The pick-up in spin-off deals also suggests more firms are
focusing on efficient capital allocation and have opportunities
to monetise current high asset valuations," they add.
"This could drive a re-rating of some parts of the market."
Morgan Stanley reminds us that “on average, companies
announcing spin-offs have outperformed the market in the 12
months prior to announcement and have performed more strongly
between announcement and completion.”
They showed way less outperformance after the completion.
Then it gives us 11 stocks to watch on the corporate
activity theme: Aviva, Dixons Carphone, EDF
, ENGIE < ENGIE.PA>, Icade, Prudential
, Rentokil, RWE, Sampo,
Santander and Sulzer.
(Stefano Rebaudo)
*****
MUTED POST-FED START FOR EUROPE, BUT DAX SHINES (0920 GMT)
The Fed's message was dovish but it looks markets aren't
rejoicing too much.
Bond yields have resumed their rise to hit new highs and
that's helping banks and other financial stocks, while hurting
defensive plays like utilities and tech.
Commodity stocks are also up, buoyed by the initial drop in
the dollar following the Fed's policy decisions, while autos
continue to run in a frenzy over German carmakers' EV plans.
As a results the overall European stock market is off to a
muted start with the STOXX 600 up just 0.2%, while the German
benchmark DAX has managed to climb to another record high.
Meantime, the euro STOXX volatility index is continuing to
fall to fresh pre-pandemic lows
Here's your snapshot:
(Danilo Masoni)
*****
DOVISH FED, HIGHER YIELDS (0810 GMT)
Fed chief Jerome Powell's unambiguously dovish stance lifted
Wall Street to record highs on Wednesday, pushed the VIX "fear
gauge" to new 13-month lows and weakened the dollar. But the
picture looks slightly different this morning.
Powell's promise to look past inflation is raising
long-dated bond yields and steepened the Treasury curve to new
5-1/2 year highs. On the other hand, the "dot-plot" showed four
Fed officials think rates should rise next year (none did in
December).
With 10-year yields almost at 1.7%, the dollar is on the
rise and equity futures back in the red. Concerns also stirred
about the Bank of Japan after a report the BOJ may widen its
trading band for 10-year government debt at Friday's meeting.
Australian yields rose 7 bps after robust jobs figures.
No fireworks expected from the Bank of England but Norway's
central bank could signal the start of its rate hike cycle --
either September or December.
Most central bank action is actually in emerging markets,
where Brazil raised rates on Wednesday by a bigger-than-expected
75 bps. All eyes on Turkey, where Governor Naci Agbal may raise
rates by 100 bps to 18% after inflation accelerated for five
months straight and the lira lost 8% since mid-February.
Key developments that should provide more direction to
markets on Thursday:
-Norway central bank decision; Bank of England policy
decision
-Credit Suisse shares up 1.5% after it announced an overhaul
of its asset management arm in the wake of regulatory
investigations over dealings with Greensill Capital
-HeidelbergCement, the world's second-largest cement maker,
expects sales and core profit to rise, echoing larger rival
LafargeHolcim
-National Grid to buy the electricity distributor Western
Power Distribution for 7.8 billion pounds.
-Dutch Prime Minister Mark Rutte's centre-right WD won
parliament election
-ECB President Christine Lagarde to speak as well as Vice
President Luis de Guindos and board member Isabel Schnabel
-TLTRO liquidity operation release at 11:30 CET
-Eurozone trade balance
-U.S. initial jobless claims
-Philadelphia Fed index
-First meeting between the Biden administration and China
(Saikat Chatterjee)
*****
DOVISH FED MESSAGE SEEN LIFTING EUROPE (0637 GMT)
European shares are set for a positive start with futures
pointing to gains of as much as 0.7%, likely enough to lift the
heavyweight DAX index to a new record high.
The message from the Fed was taken as dovish vs market
expectations and positioning which were prepared for a possible
hawkish surprise.
As a result, bond yields cooled down from highs, the dollar
fell, and U.S. stocks nudged fresh all time peaks in the
aftermath of the policy announcements.
"As expected, the FOMC held to its previous guidance of no
imminent rate hikes or tapering while reiterating its views on
supporting the economy to help rebuild employment," said OANDA
analyst Jeffrey Halley.
"Although it upgraded its growth assessments... it
maintained that higher inflation was transitory. The dot plots
of future rate hike expectations remained firmly anchored in
2024," he added.
Wall Street rallied overnight, and futures this morning
point to slight gains later on, while Asian shares rose with the
MSCI's index of Asia-Pacific shares outside Japan up 0.9%.
Turning to the European corporate front, here are some
headlines that could move stocks when the market opens:
HeidelbergCement sees higher sales, core profit in 2021
Vodafone to reap up to 2.3 bln eur from Frankfurt IPO
Italy govt to assess whether single broadband network
project still feasible
Meantime in euro zone politics, Dutch Prime Minister Mark
Rutte was on track to win a fourth term in office, with his
conservative party leading exit polls in elections dominated by
the coronavirus pandemic.
(Danilo Masoni)
*****
