* European shares up 1.2% after selloff
* Miners, oil, and tech stocks lead rebound
* Earnings in focus
* U.S. stock futures edge up
May 5 - Welcome to the home for real-time coverage of
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"HEDGE FUND SELLING HAS REACHED EXTREME LEVELS" (1017 GMT)
Hedge funds are getting nervy it seems, and that may help
explain why the recovery narrative is no longer doing its magic
with expectations of a correction building up as May gets
underway.
BofA Global Research has come out with some gloomy numbers
about clients flows. And what stands out is hedge fund activity.
"Hedge fund selling has reached extreme levels," analysts at
the U.S. investment house say, noting how hedge fund 4-week
average flows have hit the lowest since data began in 2008.
"The only other time flows were this extreme was at the end
of last August after which the S&P 500 declined by 2.5% and 2.3%
in the subsequent one and four weeks, respectively," they add.
All in all, according to BofA, clients were net sellers
(-$2.2 billion) of U.S. stocks for the third week in a row as
the market made new record highs and sentiment marched further
toward euphoria.
This combination of outflows and record highs highlights the
state of contradiction currently facing markets. And here's how
Angelo Meda, head of equities at Banor SIM in Milan, puts it.
"Lately I must say that flows and markets often go in
opposite directions... there's great uncertainty about what to
do: Value? Growth? Sell in May? To hedge/Not to hedge?"
(Danilo Masoni)
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FEARS OF MORE INFLATION, LESS GROWTH (1011 GMT)
Solid earnings and expectations of even stronger
post-pandemic company results are supporting stocks globally.
But what concerns investors is uncertainty about the
recovery. What if it wasn’t as smooth as expected due to supply
bottlenecks or unexpected consumer behaviour?
A couple of days ago, BlackRock analysts warned that markets
under-appreciate the potential for medium-term price pressures.
Today UBS analysts say the latest U.S. ISM manufacturing
purchasing manager, which drove bond yields lower on Tuesday,
pointed to “a potential loss of growth momentum and rising
inflationary pressures.”
This could stoke concerns that “the recent rise in inflation
will be swifter, or more sustained than previously expected,”
raising worries about a tightening of monetary policy, they say.
More inflation could mean higher interest rates, and if the
10-year Treasury yield were to rise above 2.25%, “current equity
market valuations would start to look stretched,” they add.
The chart shows the U.S. dollar 5 years forward
inflation-linked swap and the U.S. 10-year
Treasury yields.
(Stefano Rebaudo)
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FED TAPERING WITHOUT A TAPER TANTRUM? (0845 GMT)
You could say that the Fed is between a rock and a hard
place as it would probably need to start a reduction in bond
purchases without triggering turbulence in financial markets.
But that's the situation, while there is an increasing
consensus that the first hints of tapering will come in the
third quarter of 2021.
"The US Federal Reserve's policy of pumping liquidity into
the market may have supported a bubble on the stock market,"
according to DZ Bank analysts.
They see a possible strong reaction of financial markets to
a tapering announcement despite the Fed is expected to reduce
purchases "very carefully and slowly."
"The exit from the loose monetary policy could be more
turbulent than Fed members currently expect," they say.
"Massive buying program since the outbreak of the pandemic
will lead to phases of exaggeration in some sub-sectors of the
financial markets with a subsequent correction, sometimes
sharp," they add.
Investors expect the first tapering announcement at this
year's meeting of the world's most important central bankers in
Jackson Hole, Wyoming, which will occur at the end of
August/beginning of September.
While the tapering process should start in the first quarter
of 2022.
(Stefano Rebaudo)
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DIP BUYING AND SOLID EARNINGS LIFT STOXX (0733 GMT)
A mix of dip buying and positive soundings from the earnings
season is playing its magic and, after yesterday's sell-off,
broad-based gains are helping the STOXX bounce back with a 1%
rise in early trading.
Bank stocks and miners are leading the advance although some
areas of weakness remain with autos underperforming and stay at
home stocks still penalised by investors shifting into plays
more geared to the economic recovery.
Top gainers on the STOXX are companies like ISS ,
Rational and Merck, up 4 to 5% after
well-received numbers, while Virgin Money is down 7%,
as its first H1 profit since 2019 failed to impress.
(Danilo Masoni)
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CALM AFTER THE STORM (0651 GMT)
A degree of calm appears have to be returning to world stock
markets after the previous session's ructions -- European and
U.S. stock futures are trading higher and Asia stocks are
subdued rather than weak.
The tech-heavy Nasdaq tumbled 1.9% on Tuesday as investors
dumped megacap growth stocks amid concerns on rising interest
rate and uncertainty over an upcoming jobs report. European
shares suffered too.
The most likely reason for the declines, some argue, was
probably a bout of profit taking with moves exacerbated by trade
thinned by holidays in some markets.
Some backtracking from U.S. Treasury Secretary Janet Yellen
may help reassure markets nervous about prospects for central
bank tapering.
Yellen said on Tuesday she sees no inflation problem
brewing, downplaying earlier comments that rate hikes may be
needed to stop the economy overheating as President Joe Biden's
spending plans boost growth.
Key data this session include Italian and Spanish service
April PMIs, released alongside other final PMI readings in the
euro area, and U.S. ISM services data later in the day.
On the earnings front, German logistics company Deutsche
Post raised its financial outlook after more than
tripling its operating earnings in the first quarter.
Siemens Energy lowered the upper end of its
target range for 2021 sales, hurt by weaker-than-expected
demand, project delays and the crisis coronavirus.
And India's central bank has asked banks to let certain
borrowers have more time to repay loans, among other support
measures, as a major second wave of COVID-19 infections grips
the country.
Key developments that should provide more direction to
markets on Wednesday:
- Scottish nationalists unlikely to win a majority in
Thursday's parliamentary election though the Green Party could
take as many as nine seats, a Savanta Comres/The Scotsman poll
indicated.
- U.S. ADP private payrolls report due.
- April services and composite PMIs from Italy, France,
Germany, Euro Area, Brazil and US, Euro Area March PPI,
- Monetary policy decision from Brazilian central bank.
- Fed’s Mester, Evans and ECB’s Lane speak.
- U.S. Treasury quarterly refunding announcement at
14:30 CET.
- U.S. earnings: PayPal, Novo Nordisk, General Motors,
Booking Holdings, Uber.
- Europe earnings: Intesa Sanpaolo, PTSB, Directline.
- British online fashion retailer Boohoo reported a
37% jump in full-year earnings.
- Greece is expected to syndicate a new 5-year bond.
(Dhara Ranasinghe)
EUROPE TO BOUNCE BACK (0550 GMT)
European shares are seen bouncing back after yesterday's
heavy sell-off that drove the DAX into its heaviest one-day drop
this year, dragged by big sell orders on tech and auto stocks.
While the reasons of the debacle remain unclear, as traders
struggled to identify a specific trigger, it looks dip buyers
are already at work this morning as macro data and earnings
continue to point towards a strong recovery.
Futures on the DAX and FTSE 100 were both up 0.6% while U.S.
futures pointed to a steady start on Wall Street later on.
"Everyone's mentality remains buy any dip anyway," noted a
London-based sales trader.
On the corporate front it's going to be another heavy
earnings days with results due from Deutsche Post, Stellantis,
Intesa Sanpaolo and Novo Nordisk, just to name a few.
Over the last week analysts have raised their Q1 earnings
growth forecast for STOXX 600 companies to 83.1% from 71.3%,
according to the latest Refinitiv I/B/E/S data.
(Danilo Masoni)
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