* European shares flat
* UK inflation worries cool after July data
* Carlsberg, Alcon shares jump after forecast raise
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REFLATION TRADES (1244 GMT)
With the last four months of 2021 in sight, it is a good
time to take stock of asset class returns so far this year. Not
surprising in hindsight, commodities have been the runaway
winners so far with a net return of more than 54% topping the
league tables. The top beneficiary of the global reflation
trade, commodities have topped asset class returns for the first
time in nearly two decades, according to investment bank BoFA
Securities.
U.S. stocks are also on track for a third consecutive year
of double-digit returns with a 30% return year-to-date. Bonds
have underperformed heavily with U.S. Treasuries and global
investment grade debt posting negative returns. Small wonder
that sovereign wealth funds with sizeable equity holdings such
as Norway's $1.4 trillion sovereign wealth fund, posting a
chunky 9.4% return on investment for the first half of the year.
But with investors becoming more cautious on the global
economy's because of the Delta variant, it remains to be seen
whether such returns can be sustained.
(Saikat Chatterjee)
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THE UK HOUSING MARKET BOOMS, FOR NOW (1130 GMT)
Persimmon, Britain's No. 2 homebuilder, said it has
more agreements with buyers to purchase a home than before the
pandemic, with current forward sales up about 9% from 2019.
Its bigger rival Barratt Developments and No.3
player Taylor Wimpey have also forecast robust housing
demand.
But lately the FTSE 350 household goods and home
construction index has been moving sideways.
Persimmon shares are edging up after its latest update, but only
after an initial fall.
Cheap loans, a tax holiday and a preference for larger homes
have all boosted the UK's housing market and sustained demand
for homes. But some data pointed lately to a cooling in the
sector.
"The risk for Persimmon and its peer group is that a
softening in house prices..., leaves them exposed to margin
pressure," said AJ Bell, pointing out that the government is set
to scale back its support to the sector, while post-lockdown
pent up demand is likely to ease.
Here is a list from AJ Bell on how UK top players are
expected to perform:
(Joice Alves)
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EURO ZONE EQUITIES' REVENGE (1158 GMT)
Equity constituents matter. The U.S. stocks have
outperformed their peers for years due to high exposure to tech
shares.
But things seem to be changing for European stocks as
indexes continue “to transition to a superior sector mix that
points to a structural improvement in EPS and performance trends
ahead,” according to Morgan Stanley.
The technology sector is now double the size of the banks
sector within the MSCI EMU index and the luxury goods sector is
20% bigger than banks, Morgan Stanley numbers show.
Meanwhile, “superior sector mix warrants a higher PE ratio
in anticipation of stronger EPS growth,” MS analysts say.
“We are also seeing an upturn in equity inflows into Europe
for the first time since 2018, which could prove persistent
given that investors likely have very low exposure to the region
after years of under-investment,” they add.
For several years, sector composition has been a critical
driver of UK equity underperformance, with the UK suffering from
lower exposure to cyclical and technology.
The chart shows the MSCI Europe recently
outperforming MSCI ACWI and MSCI ACWI ex-U.S.
.
(Stefano Rebaudo)
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FRAGILE U.S. EQUITIES (0925 GMT)
Analysts have mixed views about future stock trajectories
depending on vaccines effectiveness, economic resilience,
consumers’ post-Covid attitude, Fed tapering and more...
With this high level of uncertainty surrounding financial
markets, BofA analysts highlight growing fragility risks.
The S&P index has now gone 196 trading days without a
5% pullback, and the index is on track to a near-record number
of all-time highs in 2021.
“History suggests to tread carefully from here, as some of
the largest fragility shocks have been preceded by similar
episodes of extreme market steadiness,” BofA analysts say.
The Nasdaq has recorded its most significant
rate-induced drawdowns in 15+ years.
“If recent history is any guide, a 50bps or more rise in
10-year Treasury yields over the next 3 months could see the
Nasdaq 100 drop by 9%,” BofA analysts say, adding they see U.S.
yield at 1.9% by year-end.
Since yields peaked in Mar-21, the reflation trade has
suffered significant setbacks as markets re-assessed the
“terminal rate” materially lower.
(Stefano Rebaudo)
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T&L AND REAL ESTATE STOCKS PROP UP STOXX 600 (0738 GMT)
European equities are slightly higher, led by real estate
stocks along with a rebound in travel and leisure shares.
Asia's rise overnight provides some support while worries
about high valuations and the economic impact of the Delta
variant of the coronavirus weigh on risk sentiment.
The Stoxx 600 is up 0.1%, with travel and leisure
and real estate stocks both up around 0.6%.
Oil and gas shares are the worst performers, down 0.4%, as
pandemic fears continue to weigh.
The reaction of some countries to the pandemic continues to
send jitters across markets as New Zealand yesterday placed the
entire country in lockdown after its first case in Auckland.
Meanwhile, the central bank held fire on a highly-anticipated
rate hike.
Euro zone inflation data are scheduled today. But, barring a
huge upside surprise, analysts don’t expect the numbers to have
much of an impact on stocks.
Alcon stocks are up 8% after better-than-expected
results and a hike in guidance. Netcompany Group
shares are down 5% after its results.
(Stefano Rebaudo)
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RATE HIKE? NOT YET, SAYS NEW ZEALAND (0706 GMT)
New Zealand's decision on Wednesday to hold fire on a
highly-anticipated rate hike is a reminder of the challenges
major central banks face in their bid to step away from
emergency stimulus while the coronavirus remains a threat to
growth.
Reserve Bank of New Zealand policymakers quickly shifted
gears after the country was put into a snap COVID-19 lockdown
over a handful of new cases.
A hike is still expected before the year-end, lending some
support to a kiwi dollar that has taken a beating over the last
two sessions.
Investors will also be hoping to get the latest clues on the
timing and pace of the U.S. Federal Reserve's asset purchase
tapering meanwhile.
They'll be poring over the minutes due later on Wednesday of
the July 27-28 meeting, when officials declared the recovery on
course despite the rise of the Delta variant of the coronavirus.
The readout is likely to be key to the short-term outlook
for the greenback and Treasury yields, especially if it confirms
more policymakers are leaning towards tapering bond purchase
plans by the end of the year.
Of course, economic data since then has muddied the waters.
Strong labour market numbers have spurred a number of
policymakers to ramp up talk of an earlier-than-expected start
to tapering.
Still, retail sales fell more than expected in July, data
showed on Tuesday, suggesting a slowdown in economic growth
early in the third quarter.
Fed Chair Jerome Powell said on Tuesday it remained unclear
whether the heightened outbreak of the coronavirus Delta variant
will have a noticeable impact on the economy.
Key developments that should provide more direction to markets
on Wednesday:
- U.S. Federal Reserve releases minutes from July 27-28,
2021 policy meeting - 1800 GMT
- Norway's sovereign wealth fund presents second-quarter
results.
-UK consumer price inflation falls to BoE's 2% target in
July
- U.S. earnings: Robinhood Markets Inc Q2.
- European earnings: TBC Bank Group Q2.
- Inflation data for Slovakia and South Africa released.
-Danish brewer Carlsberg raised its full-year
earnings guidance on Wednesday after reporting second-quarter
sales above expectations.
(Tom Arnold)
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EUROPE IN THE BLACK BUT STILL UNCERTAIN (0533 GMT)
European stocks are poised to open slightly higher. However,
the medium-term direction is still uncertain amid concerns about
the spread of the impact of the Delta variant in Asia and
unexpected weak economic data in the U.S.
Asian equities snapping five successive sessions of declines
after a drop in reported COVID cases in China provide some
support.
But pretty expensive stock valuations coupled with
expectations of the peaking of economic growth in the third
quarter continue to weigh on risk sentiment.
(Stefano Rebaudo)
*****