* European shares open up slightly
* Healthcare, travel and leisure stocks lead sectoral
gainers
* Deutsche Bank falls despite first profit since 2014
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GERMAN BOND REPRICING (1034 GMT)
Two questions have been keeping government bond markets on
edge since the delays in vaccine rollouts: can we still expect a
strong economic rebound this year and, if this happens, will the
ECB allow yields to rise?
Goldman Sachs continues to forecast a strong cyclical
recovery coupled with a rise in long-end euro zone yields.
The recent delays “should only delay rather than derail the
eventual vaccine rollout in Europe,” it says in a research note.
A more substantial risk comes from new strains of COVID
however recent news on vaccine efficacy suggests that “our base
case for strong cyclical improvement in mid-2021 is intact.”
ECB wouldn’t be a problem as it will interpret yields rising
as being consistent with favourable financing conditions when
cyclical conditions improve.
German 30-year yields were conspicuously low
relative to the type of cyclical improvement we are still likely
to see and they have around 30 bps of room to reprice higher.
The investment bank forecast 10-year bund yields
at -0.30% at end-2021.
In the chart below Germany’s 30-year bond yield briefly
above zero level today for the first time since September.
(Stefano Rebaudo)
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DAS AUTO (0844 GMT)
European shares are up just slightly but nevertheless
managing to extend their winning streak to four days, shrugging
off weakness seen in Asia overnight.
Risk sentiment remains supported as investors look past the
Reddit fuelled gyrations and focus instead on the upcoming
economic recovery, giving reflation trades new impetus.
No surprise then to see auto sector, which will be key in
driving Europe Inc out of its profit recession, taking the lead
and helping lift the STOXX 600 up 0.4% in early deals.
Autos are among the best performers in Europe year
to date and their index has its highest since September 2018.
Their gains have brought the auto-heavy German index DAX
at striking distance from the record high set last
month, up 0.6% on the day and at the key 14,000 mark.
The DAX was up even as initial gains in Deutsche Bank
fizzled out. The lender eked out a small annual
profit, its first since 2014, as its investment banking business
boomed.
Oil stocks, another reflation trade, are also doing
strongly, as crude prices rise. Shell rose after its
results.
(Danilo Masoni)
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BACK IN THE COMFORT ZONE (0801 GMT)
With the Reddit tumult under control, markets have returned
to their comfort zone. World shares are a tad lower but within
striking distance of last month's record peak and on track for
their strongest week in three months.
Positive soundings from the earning season, Italy tapping
former ECB chief Draghi to solve its political crisis, hopes for
big-time U.S. stimulus and bullish comments by Fed policymakers
on economic growth are all lending a new impetus to reflation
trades.
Ten-year U.S. Treasury yields set a new three-week high at
1.151% and Brent crude is at an 11-month peak. In Europe,
despite a double-dip recession, German 10-year yields are
approaching six-month high.
In a sign of confidence, Shell boosted its dividend even as
Q4 profits dropped to the lowest in over two decades, boosting
shares almost 1% pre-market. Deutsche Bank meanwhile posted its
first annual net profit since 2014, sending shares nearly 4%
higher before the bell.
On the radar is also the Bank of England. No policy changes
are expected but it will likely set its sight on the prospects
of an vaccine-driven economic recovery and release the findings
of a consultation on what negative rates would mean for banks.
One dampener: speculation China may want to tighten its
policy drove short-term rates higher. Also watch the dollar --
at its strongest in more than two months on signs U.S. economic
recovery is outpacing the rest of the developed world.
Key developments that should provide more direction to
markets on Thursday:
Unilever reported underlying sales growth for the fourth
quarter that was in line with estimates
Roche got a fourth-quarter lift from its COVID-19 test
business
Nokia reported better-than-expected fourth-quarter revenue
and underlying profits, buoyed by a strategy revamp
Frankfurt-listed shares in retail trader darlings GameStop
and AMC fell in early trade
Bank of England meeting
Egypt central bank meets
Japan auctions 30-yr bonds
U.S. corporate events: Cigna, Bristol Myers-Squib, Merck,
New York Times, Ford, Motorola
(Danilo Masoni)
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MORNING CALL: TAKING A BREATHER (0638 GMT)
European shares look set to open little changed this
morning, as investors take a break following three straight
session of gains, driven by the GameStop trade unwinding, U.S.
stimulus and (last but not least) former ECB chief Draghi taking
on the task of bringing Italy out of its political crisis.
Futures on the DAX and FTSE 100 indexes were trading flat
and up 0.2% respectively at the time of writing.
Over in Asia, shares dipped as tight liquidity conditions in
China curbed buying for now, though improving corporate
earnings, expectations of large U.S. stimulus and subsiding
retail frenzy all supported risk sentiment.
Back to Europe where the earnings season in underway,
Deutsche Bank is on the watch-list after the bank
swung to a small annual profit in 2020, its first since 2014, on
the back of strong gains at its investment banking division.
(Danilo Masoni)
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