LIVE MARKETS-BoE: no big surprise but a dip for UK banks

* BOE policy unchanged, sees inflation peek at 3%

* European shares rebound

* U.S. stock futures rise

* German business morale rises, tops expectations

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BOE: NO BIG SURPRISE BUT A DIP FOR UK BANKS (1204 GMT)

Not much was expected from the BoE today and sure enough,
the bank's policymakers voted 8-1 to keep the bond-buying
programme at 875 billion pounds and at 9-0 to keep the rate
unchanged.

The main news here is that the central banks now expects
inflation to peak above 3% for a "temporary period".

Market price action was mainly on sterling which fell about
0.5% against the dollar and gave a little boost to the FTSE 100.

It was less rosy though for UK banks which took a 0.5% hit
in about 15 minutes but are now slowly moving their back up and
currently up 0.6% for the day.

As noted by Hinesh Patel, portfolio manager at Quilter
Investors, a rate hike which would boost the profitability of UK
banks is still far away.

"Core inflation is likely to peak this summer, so it may
even be 2023 until we see rate hikes given the Bank will want to
catch-up to pre-Covid conditions", he wrote in a comment of the
BoE's policy decisions today.

See:

Bank of England sees inflation peaking at over 3% before
falling back

Sterling slips as BoE keeps rates at all-time low

LIVE MARKETS-BoE: who will join Haldane?

(Julien Ponthus and Joice Alves)

*****

STILL WORRIES ABOUT BANK DIVIDENDS (1121 GMT)

While a lift in the ECB dividend ban for banks is widely
expected the outcome of July’s stress tests could make some
lenders cautious about pay-outs.

Credit Suisse analysts say that “capital ratios have never
been stronger, but the adverse scenario has never been tougher.”

Although “there is no ‘fail’ of the stress test,” as the
economy is performing far better than the adverse scenario,
“some banks are concerned the ECB could lift the ban (very
likely) but reiterate caution on dividend payments.”

Euro STOXX Banks dividend future with maturity 2022
and 2023 are not far from their pre-pandemic highs (see
chart below), while 2021 is still lagging.

Credit Suisse analysts expect the highest 2021 second half
yields (>5%) at Nordea, ING, BBVA
and ABN.

“Lowest post-stress CET1 ratios could come from German,
French and Spanish banks due to 2018 sensitivities and starting
capital,” it says.

(Stefano Rebaudo)

*****

STOCK PICKS FOR THE POST-PANDEMIC GROWTH CYCLE (1010 GMT)

The future looks brighter. With real time data suggesting
economic activity in Europe, the U.S. and the UK are very close
to pre-pandemic levels, Jefferies expect some companies to
embark a period of bonanza, which could last well into 2022.

Rising demand coupled with still supportive monetary policy
may offer all it takes to the rebound.

"Taken together, we see a virtuous investment cycle playing
out, sustaining an economic rebound into 2022 and beyond," says
Jefferies.

The U.S. bank identifies four themes that could benefit the
most.

1) Going green

More companies are ready to ride the trend towards reducing
carbon footprint, some suggestions: Rolls Royce (Power
Systems), Assa-Abloy (Electromechanical Solutions), Subsea 7
(Offshore Wind), Derwent London (Green
Buildings), Great Portland (Green Buildings), Iberdrola
and National Grid (Renewables)

2) Infrastructure

Modernising ageing infrastructure is at the heart of global
fiscal stimulus, Jefferies says, and CRH (Heavyside
Build), Ashtead (Construction Equipment Rental) and Hill
& Smith (Roads) are well-placed to benefit.

3) Corporate spend

Companies exposed to the industrial cycle such as Siemens
(Digital Industries), Bureau Veritas
(Testing), Acerinox (Stainless) and SSAB
(Heavy Plate).

Some banks, a key "beneficiary of a brighter capex cycle":
Unicredit, Societe Generale, ING
and Barclays

4) Pricing power

As strong demand meets a fixed supply chain, "Continental
and Michelin can generate supernormal
profits given favourable dynamics in their Tyre businesses",
Jefferies says

(Joice Alves)

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STILL BULLISH ON COMMODITIES? (0955 GMT)

Commodity prices -- and so Europe's basic materials stock
index -- suffered a significant setback recently after being in
a sweet spot for months.

Today shares in miners are staging a nice rebound, up 1% and
among the best sectoral performers on the STOXX 600, but the big
deal is the medium-term outlook of commodity prices.

Strategists at UBS Chief Investment Office say “near-term
headwinds could push prices even lower.” But they “remain
bullish on the metal because of the accelerating global growth
backdrop.”

They say the copper market could be undersupplied by 603,000
tons (2.4% of annual demand) in 2021 and by 461,000 tons (1.8%
of annual demand) in 2022.

“This backdrop should allow prices to recover to USD
11,000/mt over the next 6–12 months, in our view,” they argue.

China investigating commodity prices, a strong
dollar, and a possible economic impact of a rise in interest
rates were the main drivers of a correction in commodity prices.

Yesterday London copper prices rose after Fed Chair Jerome
Powell vowed to keep interest rates low to boost economic
recovery, and data showed strong factory activity.

(Stefano Rebaudo)

*****

BOE: WHO WILL JOIN HALDANE? (0906 GMT)

Few expect a policy change from the BoE today but as usual,
the devil is in the details.

The key question for detail lovers this time around is:
will anyone join Andy Haldane?

The outgoing chief economist is widely seen voting again to
scale back the bond-buying programme at his final meeting before
leaving the bank.

In May Aldane was alone when he voted to halt bond purchases
but now that inflation has overshot the central bank's 2% target
others may be tempted to turn more hawkish.

"If it is anyone, it could be Gertjan Vlieghe, who has said
that a rate hike could be on the cards in late 2022," says Fawad
Razaqzada, an analyst at TF Global Markets in London.

"However, Vlieghe is also leaving at the end of August. This
means that the votes from the core MPC members Ramsden,
Broadbent and Cunliffe will be more important. These members are
known doves," he adds.

Meantime sterling was in wait and see mode, edging up below
the $1.4 mark against the dollar, reflecting expectations
the BoE will unlikely make big headlines at midday.

"As there is no official update on economic forecasts today,
there will probably be no change in the MPC tone", sums up Ipek
Ozkardeskaya at Swissquote.

But some others don't rule out possible surprises.

"We see a roughly even chance that the BoE could surprise
markets today by signalling that it will end its planned asset
purchases in August, instead of December as previously
announced", writes Kallum Pickering at Berenberg.

"While such a change would not have major economic
consequences, it could take bond markets by surprise", he added,
pointing out that "any commensurate jump in gilt yields could
trigger a temporary correction in equity markets".

Here's a refresher on BoE policymakers' recent comments.

QUOTES-Inflation and the Bank of England: what its
rate-setters have said

(Danilo Masoni and Julien Ponthus)

******

TECH HELPS STOXX EDGE UP, FTSE AWAITS BOE (0743 GMT)

European shares started the session in the black with tech
tracking U.S. peers higher and helping the STOXX 600
index recover some of the ground it lost yesterday.

The pan-regional benchmark was last up 0.3% with the tech
index leading sectoral gainers, up 0.7%. Most other
sectors were also trading in positive territory, while telecoms
clearly underperformed, down 0.4%.

Top gainers on the STOXX were shares in Tecan Group
up 12% after the Swiss laboratory instruments maker agreed to
buy U.S. group Paramit Corp for $1 billion.

The FTSE 100 performed broadly in line with the
broader European market with sterling steady before a BoE policy
meeting set to show whether central bankers are worried over
Britain's recent jump in inflation.

Here's your opening snapshot:

(Danilo Masoni)

*****

WEIGHING IN ON THE T-DEBATE (0652 GMT)

Post-Fed market action hasn't exactly been straightforward
and one week after the bank kicked off tapering talk and
signalled a 2023 rate hike investors are still trying to make
full sense of it.

The hawkish tilt - at face value negative for tech - has
boosted the Nasdaq whereas Europe's cyclically tilted STOXX 600
has shifted into reverse gear, erasing its recent outperformance
relative to Wall Street.

So while the Nasdaq closed at new record highs overnight and
is set for more gains later, European stock futures point to a
mildly positive start after losses yesterday in spite of euro
zone PMI surveys beating expectations to hit a 15-year high.

Equity markets are reflecting the prospects that eventually
economic growth will slow down amid less central bank support,
while the chance of a rate hike has pushed short-dated U.S.
rates higher, flattening the yield curve.

So while investors assess Fed's policy shift, the focus
today moves to the Bank of England with the pound holding below
a two-year high hit earlier this month.

No change is expected but sterling bulls will be eager to
know if any other policymaker joins Chief Economist Andy Haldane
to scale back the bond-buying programme at his final meeting.

Finally Germany's IFO will also be eyed for more insight
into the strength of business climate in Europe's No.1 economy.

In corporate news, private equity firm Blackstone has
sweetened its buyout offer for St. Modwen Properties to 1.25
billion pounds.

Key developments that should provide more direction to
markets on Thursday:

* Bank of England policy meeting 1100 GMT

* ECB speakers: board members Panetta and Schnabel

* Netherlands, Spain Q1 GDP data

* Business climate surveys: Germany, France.

* U.S. data: May durable goods, Q1 GDP, Core PCE prices

* Emerging markets: Philippines, Mexico rate decisions

* U.S. 7-year note auction

(Danilo Masoni)

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EUROPE SEEN OPENING STEADY (0540 GMT)

European shares look set to open steady this morning after
falling in the previous session in spite of strong PMI surveys,
with the focus turning to the BoE's policy meeting and Germany's
IFO business climate index.

So while on Wall Street the Nasdaq continues to score fresh
record highs, main European benchmarks remain subdued.

Futures on the DAX and FTSE 100 indexes were last up less
than 0.1%, while Euro STOXX 50 futures rose 0.2%, whereas Asian
shares tread water and U.S. futures pointed to a positive start.

For a BoE story, check out: Rising inflation puts Bank of
England on the spot

(Danilo Masoni)

*****