Last checked at 
* STOXX 600 slightly up
* Basic materials index leads, defensives lag
* Airbus surges on plans to expand jet production
* Momentum builds for global corporate tax
May 27 - 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
WHO'S AFRAID OF A FED'S 'DOVISH TAPERING'? (1058 GMT)
While markets are wondering when the Fed will start tapering
its bond-buying programme, some analysts are warming to the idea
that a U.S. central bank's move in that direction will not be so
bad for markets after all.
Talk of tapering could keep investors on edge, but "we
believe the U.S. central bank will give ample notice before
changing policy," says Mark Haefele, Chief Investment Officer,
UBS Global Wealth Management.
George Saravelos, a strategist at Deutsche Bank, calls it a
'dovish Fed taper', as he forecasts it won't be like in 2013
when a Fed move triggered a sharp selloff in equities.
"Tapering this time is much better flagged, and the Fed is
at pains to 'baby-sit' the market," he adds.
Furthermore, the risk of overheating for the U.S. economy
could fade, according to Deutsche Bank. Mobility indicators and
the number of high-frequency data already point to some cooling
activity after the initial burst.
The supply-side bottlenecks of the post-pandemic economy are
disinflationary.
SocGen analysts recall that U.S. 10yr yields rose from a low
of 1.4% in 2012 to 3% during their tantrum. In this cycle, the
rise has been from 0.5% to a high just below 1.8%.
"That's comparable in relative terms," they say. "Can't we
accept that the taper tantrum has already happened?"
(Stefano Rebaudo)
*****
EUROPEAN BANKS: TIME TO SWITCH GEAR? (0914 GMT)
European lenders have come a long way since the COVID-19
crash of March 2020, up a good 75% actually.
And while they're no longer outcasts and their shares have
found a place in the reflation/recovery trade within portfolios,
it's fair to say there's still a fair amount of caution towards
them.
According to Citi analysts though, there will probably be a
point when investors will need to consider changing gear with
the recovery pushing yields higher and the end to dividend
restrictions.
"To date, we believe the underweight position in European
banks has been unwound, but few investors seem outright
overweight", they note, arguing that there's potentially more
upside, notably for Swiss, French, Benelux and UK banks.
"We have seen a marked pick-up in interest levels in the
sector from real-money generalist investors", they add.
One key feature of the sector, according to Citi analysts,
is the pay-out with the dividend yield expected to reach 6-7%.
(Julien Ponthus)
*****
ITALY’S DEBT: STILL A LOW PERCEIVED RISK (0840 MGT)
There were basically two ideas about the cause of a recent
widening in the Italian-German yield spread, a gauge of the euro
system stability.
Some lack of confidence in the policy of Italy’s Mario
Draghi-led government or a sort of knee-jerk reaction to fears
of a June’s ‘hawkish mistake’ by the European central bank
(ECB).
It seems to be more the latter, though some worries about
the approval process of the Italian recovery plan weighed on
Italian bond prices.
“Although the BTP-Bund spread is currently trading wider
than some weeks ago, the high correlation with Bunds (around 70%
over the past 50 days) shows that investors continue to perceive
idiosyncratic risk in Italy as low,” says Francesco Maria Di
Bella, strategist at Unicredit.
“The future performance of Italian govies is likely to
depend on what will happen outside Italy, especially in
Frankfurt,” he adds.
When the correlation shown in the chart is rising, it means
that the Italian debt risk profile is getting closer to the
German one, as it happened in the last few months.
When the Italian debt is perceived as increasingly riskier,
that correlation tends to fall even dramatically; it was
negative in the aftermath of the outbreak, before the ECB
stepped in.
(Stefano Rebaudo)
*****
EUROPEAN STOCKS STUCK ON THEIR BALANCING ACT (0735 GMT)
European equities seem to have found a sweet spot they're
reluctant to move from!
The STOXX 600 has opened unchanged at 445 points, just below
its record high and roughly where it has been doing a balancing
act since the beginning of the week.
One could argue the session seems slightly tilted towards
risk-on with travel and leisure, miners and industrials leading
the way while defensives such as healthcare and consumers
staples lag behind.
But there's really no drama to be spotted so far apart maybe
from Tate & Lyle, which is down over 5% after reporting its
results and Bayer, sliding about the same on disappointment at
the failure to settle part of the legal risks from Roundup.
Leaving these two stocks aside, most of the big movers are
doing so in positive territory.
Airbus is the top gainer, up over 6.5% as it sets out
production expansion goals for its jetliners.
Here are the top movers on the pan-European index:
(Julien Ponthus)
*****
THE TIMES THEY ARE A-CHANGING (0703 GMT)
Stock markets have found a kind of equilibrium these days,
below record highs yet apparently content about the U.S. Federal
Reserve's wait-and-watch policy stance.
They may also be getting accustomed to the taper talk that's
increasingly creeping into Fed speakers' lexicon. The bank's
vice chair for supervision Randal Quarles was the latest to say
he was prepared to open talks on reducing emergency support. (He
did stress at the same time the need for patience).
And broader structural shifts are also underway.
Take yesterday's banking industry hearing at the U.S.
Senate. Alongside receiving the usual grilling for perceived
greed and malpractices, Wall Street's top bankers also found
themselves under attack from some Republican Senators for
supporting liberal causes, such as gun control or limiting
fossil-fuel financing.
Actually, cutting off fossil-fuel companies makes perfect
business sense. Shareholders have just rebuked the top two U.S.
oil companies for dragging their feet on fighting climate
change. And a Dutch court has told Royal Dutch Shell to move
faster on cutting greenhouse gas emissions.
Another landmark moment yesterday was in the 'gig economy'
where Uber recognised Britain's GMB union, allowing it
to represent up to 70,000 drivers.
In the midst of all this, M&A continues apace, the latest
mega-deal being Amazon's purchase of MGM, the fabled U.S. movie
studio home to the James Bond franchise.
In the meantime, signs of an easing recovery came in with
earnings at China's industrial firms growing at a slower pace in
April and German consumer morale improving less than expected
heading into June.
Key developments that should provide more direction to
markets on Thursday:
-- ECB speakers: supervisory board’s Pentti Hakkarainen
(0910 GMT), vice president Luis de Guindos (0945 GMT); board
member Frank Elderson (1000), board member Isabel Schnabel (1300
GMT)
-- U.S. durable goods, GDP, weekly jobless
-- Auctions: US 4-week t-bills, 7-year notes; Japan 40 yr
bonds
-- US earnings: Dollar general, Medtronic, Dollar Tree, Best
Buy, Gap, Costco
-- European earning: Johnson Mathey, Tate and Lyle
The same six bank CEOs will appear before the House Financial
Services Committee on Thursday
(Julien Ponthus)
*****
EUROPE: A FLAT OPEN ON THE HORIZON (0524 GMT)
European shares have been trading in a tight range this week
and there's no sign of a change of course this morning.
Futures on the euro STOXX 50, DAX and FTSE 100 indexes are
perfectly flat.
So far this week, the pan-European STOXX 600 has made gains
of 0.18% and seems to be clinging around 445 points, just below
record highs.
Things are quiet too in Asia with MSCI's index of
Asia-Pacific shares outside Japan down 0.3%
after Wednesday's high and Wall Street closed on modest gains.
Markets seem content about the current status quo on QE.
On Wednesday, Fed vice chair for supervision Randal Quarles
said he was prepared to open talks on reducing the central
bank's emergency support measures, only to also stress the need
to remain patient.
(Julien Ponthus)
*****
