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* Europe's STOXX 600 down 1.5%
* Tech stocks set for worst session since October 2020
* Euro zone yields jump higher
* Oil and gas index at February 2020 high
* Nasdaq futures fall
*
Sept 28 - 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
EURO ZONE GOVERNMENTS FLOODED WITH CASH (1033 GMT)
Peripheral euro zone governments have been stashing massive
amounts of cash during the pandemic in a move that might reduce
future bond supply while easing yields and tightening spreads
with core bond borrowing costs.
This doesn’t seem to be the opinion of BofA analysts, who
see worries about a possible tantrum when the Pandemic Purchase
Programme (PEPP) ends in March 2022 weigh.
High cash reserves increase “the likelihood of a pick-up in
buy-back activity (especially in the periphery) over 4Q and add
downside risks to the issuance projections for 2022 and 2023,”
they say.
“Despite this positive news, risk balance has also moved
towards less Asset Purchase Programme (APP) support after the
end of PEPP, effectively limiting their positive effect to the
European government bonds front-end,” they add.
Italy “may try to keep higher than usual cash holdings up to
around the end of PEPP and consider reducing it only after
potential bond market tantrums after March 2022 seem unlikely.”
The rise in cash holdings far outpaces bills outstanding in
Italy, providing its treasury more resilience around PEPP risks,
according to BofA data.
Euro zone member states' deposits on central bank accounts
reached nearly 620 billion euros, higher than pre-Covid's 240
billion euros levels.
(Stefano Rebaudo)
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EU BANKS SAY: "WE LIKE THE 'TRAFFIC LIGHT' COALITION" (0952
GMT)
If European banking stocks could speak would they express
any preference about government coalition talks in Germany?
Surely they would!
Most analysts in fact believe the rate-sensitive industry
would be better off under a 'Traffic light' coalition between
the SPD, the Greens and FDP -- currently the most likely
scenario.
The argument is based on the view that a 'Traffic light'
administration would spend more than a Jamaica coalition. That
in turn would lift yields and banking stocks which are highly
correlated to rates and the economic cycle.
Here's the bargain for politicians, as Andrew Garthwaite,
Head of Global Equity Strategy at Credit Suisse, sees it.
"To satisfy the demands of the Greens and FDP, the SPD would
be likely to need to commit to an increase in green investment
spending, without a significant increase in taxes (to satisfy
the FDP). While the SPD and FDP remain committed to the debt
brake, at least verbally, such a coalition is likely to see
increased fiscal spending by allowing 'investments in
infrastructure' to be off balance sheet and a commitment to EU
integration (and perhaps a permanent Recovery Fund)".
And here are the market implications: "Such an outcome would
place further upward pressure on German bund yields; drive
re-engagement with renewable and ESG plays; underpin the case to
own European banks; support the euro and the case for European
equities in a global portfolio".
In the chart below you can see the correlation between
European banks and German bond yields.
(Danilo Masoni)
*****
AFTER A SURGE AT THE OPEN, VOLATILITY COOLS DOWN (0902 GMT)
Market action was intense at the open with oil and gas
stocks shooting up and tech falling down simultaneously.
Oil prices and yields spiking up, the safe-haven dollar
sucking in gains: the session looked to be on course for a very
complicated Tuesday.
Europe's volatility gauge also shot up 2 points to
24, exposing the market stress.
Now, even if the broader STOXX 600 is still 1.1% down but
volatility has fizzled back down substantially, a sign perhaps
that things a could be settling down a tad.
Or maybe this is just a temporary respite before Wall Street
opens and big tech stocks face once again the threat of rising
yields.
(Julien Ponthus)
*****
TECH SELLOFF DRAGS EUROPEAN STOCKS LOWER (0751 GMT)
European equities are lower, with tech stocks under strong
selling pressure, while shares in oil and gas companies are well
in the black.
The energy sector continues to benefit from oil prices
rising for the sixth day in a row on fears over tight supply.
Tech stocks are struggling after the Nasdaq underperformed
the S&P 500 index yesterday as yields are moving higher and
inflationary pressures growing stronger.
The European Stoxx 600 is down 1%, with the tech
index falling 2.7% and on course for its worst session
since April. Oil and gas stocks rise 0.8% hitting a new
high since February 26.
Worries about the global economy hit risk sentiment after
Goldman Sachs cut China's economic growth forecast for 2021, as
energy shortages and deep industrial output cuts add
"significant downside pressures."
Stocks in Petershill are up 0.6% on London debut,
while Smiths Group shares are the best Stoxx 600
performers, up 3.3% after full-year results.
(Stefano Rebaudo)
*****
TIME TO EXPECT INFLATION (0718 GMT)
It's only Tuesday but ten-year Treasury yields are already
up 8 basis points this week, leading a global move up in
government borrowing costs after last week's hawkish central
bank chorus.
Even more interesting is the move in inflation breakevens,
which reflect bond market expectations of future price growth.
Ten-year U.S. breakevens rose almost 5 bps yesterday and are up
10 bps in the past week. Those moves too are being seen across
much of the developed world, including Germany and Britain
.
It's probably not all that surprising, given the spreading
energy shortages and gas price spikes that have rapidly fed into
crude oil markets, taking Brent above $80 a barrel.
Fears are growing of the associated seep-through into other
parts of the economy; Chinese power shortages have already
halted production at a number of factories and may further dent
global supply chains.
Investors say the yield rises are yet insufficient to derail
the TINA narrative that has kept the stocks rally going.
European markets do look set for a stronger session though Wall
Street futures are down, especially those for Nasdaq whose
tech-heavy stocks take a bigger hit when yields are on the rise.
We get to hear the views of several policy heavyweights
later on Tuesday, from Fed Chair Powell to the Bank of England's
Andrew Bailey to the ECB's Christine Lagarde.
China's PBOC meanwhile has managed to calm the waters with a
pledge to support homeowners. That lifted Hong Kong and
mainland-listed shares, including property firms that have been
hit hard by the problems at Evergrande which looks set for a
debt default.
But... could the United States be headed for default too?
With three days left before U.S. government funding expires
and a month or less before the Treasury runs out of borrowing
room, the Senate failed on Monday to approve a measure to
suspend the debt ceiling. The wrangling continues.
Key developments that should provide more direction to
markets on Tuesday:
-Chinese industrial firms' profits slowed for a sixth
consecutive month
-Britain put the army on standby to deliver fuel
-ECB President Christine Lagarde speaks
-Fed Chair Jerome Powell addresses Senate Banking committee
-U.S. Treasury Secretary Janet Yellen speaks
-Emerging markets: Morocco, Kenya central bank meetings
-German consumer sentiment
-BOE consumer credit
-U.S. business and consumer inventories
-Auction: 7-year Treasury auction
(Sujata Rao)
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EUROPEAN FUTURES MIXED, CAUTION OVER CHINA (0619 GMT)
European stock futures are mixed after yesterday's dip as
worries over China coupled with rising interest rates are
keeping risk sentiment in check.
Some investors argue that bond yields increase will not hurt
the equity rally as it reflects optimism over economic growth
rather than inflation worries.
At the same time, they expect central banks’ policy stance
to remain fairly accommodative.
But, China is under scrutiny as Evergrande Group’s crisis is
unsolved while investors worry about the economic impact of
power shortages.
(Stefano Rebaudo)
*****
