* STOXX 600 down 1.3%
* Wall Street futures fall back
* Focus on U.S. job data
* Miners, autos, oil and gas tank
May 13 - 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
INFLATION: THE NARRATIVE TUG OF WAR (1211 GMT)
The U.S. job data every trader is waiting for is less than
30 minutes away now and it's probably a good time to stress how
divided the investment community is on inflation.
A decade ago, the debate was between 'inflationistas' and
'deflationistas' over what a QE-heavy post financial crisis
world would look like.
Now surely deflation can be ruled out on the short term and
yesterday's U.S. CPI forced everyone to acknowledge that
prices are indeed heating up.
Still two narratives are at play. The first one is backed by
the Fed which believes it's only a temporary blip.
A good example of that can be found in the morning note of
Mark Haefele, CIO at UBS Global Wealth Management.
"We think it highly likely that the uptick in inflation
driving the recent volatility will ultimately prove
short-lived".
Then, they are those - the 'inflationistas' - who believe a
structural shift is at play and expect it to materialise very
soon.
Take Vincent Deluard, a macro strategist at StoneX.
In his latest reports he seeks to debunk a whole list of
factors, from global ageing to technological progress, believed
to be keeping a lid on inflation.
His final take? "I expect U.S. inflation to reach 5% by the
end of the year and to rise to high single digits in the coming
years".
For Jim Reid at Deutsche Bank, it's still too early to know
who will win the argument.
"I still lean heavily on the inflationary camp but the
reality is that the battle is still in the early stages and
non-inflationists will still be able to use the transitory
argument for several more months yet".
In the meantime expect a mean tug-of-war between the two
sides.
"There’s going to be a real struggle for control of the
narrative between the Fed and the market for the next few
months", wrote Marshall Gittler at BDSwiss.
(Julien Ponthus)
*****
THE INFLATION EXCUSE (PART 2) (1121 GMT)
We mentioned earlier Nomura's Takada not being fully
convinced that inflation is the real driver behind this week's
sell-off, as things should normalise within three to six months.
He also gave some noteworthy insights into why the mood may
have soured, pointing his finger among other things to taxes.
"There may be some specific factors contributing to the
softening in US stock market sentiment, including the conversion
of equity holdings into cash for the purpose of making tax
payments," he noted, without elaborating.
U.S. President Joe Biden has said he wants to raise the U.S.
corporate tax rate to between 25% and 28%, from 21%, to pay for
badly needed infrastructure.
(Danilo Masoni)
*****
ALPHAWAVE, ANOTHER DELIVEROO IN THE MAKING? (1030 GMT)
Another tech IPO that doesn't go as hoped marks a blow to
Britain's ambitions to attract fast-growing tech companies to
the London market.
Alphawave's shares plunged by as much as 20% on
their London market debut, shrinking the value of the Canadian
semiconductor company by around 600 million pounds within hours,
from its initial 3.1 billion pounds valuation.
“This is a great shame, though, and no cause for
celebration," says AJ Bell Investment Director, Russ Mould.
"Another poor start for a high profile flotation".
As the company is growing fast and demand in the
semiconductor industry seems on the rise, investors are finding
it hard to pinpoint a reason for the Toronto-based firm's poor
debut.
Apparently, the IPO timing wasn't right.
“Through sheer bad luck, Alphawave IP is coming to market in
a volatile week," Mould points out, with mounting inflation
fears spooking investors.
Also, it doesn't help that this IPO comes only weeks after
Deliveroo shares plunged by as much as 30% in their
trading debut in London, slicing more than 2 billion pounds off
the company's valuation.
It now may become easier to accuse the UK investment
community not to ‘get’ technology when nothing could be further
from the truth," Mould argues.
The hefty valuation may also have played a role as the price
tag of 410 pence per share looked steep.
“Perhaps the company and its advisers need to assess whether
they asked for too much," Mould says.
(Joice Alves)
*****
INFLATION, PERHAPS JUST AN EXCUSE TO SELL (0955 GMT)
Are investors really fretting about inflation? Nomura quant
strategist Masanari Takada isn't fully convinced and believes
that it could just be an excuse to sell.
"Going by what we see in investors' present positioning, the
current risk-off turn in the market looks like a spontaneous
correction to overdone risk positions established up through
April," he tells clients.
"The prognostications we are hearing on the street about
looming inflation and the risk of stagflation look to us like
cover for selling to lock in profits," he adds.
According to Takada, the steep jump in inflation indicators
looks largely an "artifact" of statistical base effects.
"Inflation rates in DM countries may turn downward again
within the next three to six months," he argues.
That being said, Takada says the immediate concern is that
systematic funds and other trend-following investors could
increasingly engage in something like panic selling.
"If fundamentals and financing conditions hold up, the
seasonal selling may well wind down, with the S&P 500 rebounding
before it can fall to 3,900," he concludes.
(Danilo Masoni)
*****
FROM BAD TO WORST WITH SOME HELP FROM WALL STREET (0851 GMT)
We're well into the second hour of cash trading in Europe
and it's fair to say the mood is clearly getting worse.
The STOXX 600 has gradually extended its losses from about
1% to 1.7% at the moment and one key factor might very well be
Wall Street futures. Volatility gauges were also spiking higher.
The S&P and Dow derivatives were still trading in the black
before the open in Europe, suggesting that yesterday's sell-off
was limited and that European bourse only had to adjust a tad
lower.
Now, it seems there's further down to go with U.S. futures
losing about over 0.5%.
Obviously traders will now turn attention to U.S. weekly
jobless claims due this afternoon for guidance on whether upward
pressure on prices will persist.
For Connor Campbell at Spreadex, further volatility is
clearly a possibility.
"Analysts are expecting another week-on-week drop, from
498,000 to 487,000 – however, these estimates are notoriously
inaccurate, so there could be a lot of movement around that
number", he wrote this morning.
(Julien Ponthus)
*****
INFLATION: 'SELL EVERYTHING' MOOD AT THE OPEN (0729 GMT)
Now, with inflation fears kicking in, one would expect a few
sectors, like cyclicals and among them banks, to provide some
sort of safe haven in this little stock market storm.
Only, this really looks much more like a big risk off
session rather than the perfect time to arbitrage between growth
tech stocks and cyclical value.
Tech is down 1%, in line with the STOXX 600 benchmark but
miners and banks are getting even bigger hits, losing down 2.5%
and 2.3% respectively.
It is a weird session indeed as one wouldn't expect oil and
gas to be falling more than the market if inflation is really
the name of the game.
And yet, the sector is falling 2.2% with oil prices going
down, dragged by concerns about the coronavirus crisis in India.
One clear pattern at the open is that, as one would expect
in a typical risk-off day, defensives are performing best.
Healthcare is doing best, down 0.4% followed by telcos,
-0.4% and utilities -0.8%.
Obviously, this is not the best time for an IPO: Canadian
computer chip designer Alphawave's shares fell as much
as 19% in their London market debut!
Here's the state of play for European sectors at 0728 GMT:
(Julien Ponthus)
*****
INFLATION ANXIETY LINGERS (0701 GMT)
Inflation fears continue to dominate across stocks, bond and
FX markets.
After data on Wednesday showed U.S. consumer prices jumped
by the most in nearly 12 years in April, the S&P 500 index
suffered its biggest one-day percentage drop since February.
Asian shares in turn hit seven-week lows while futures
pointed to a weakness ahead in Europe and the United States. The
dollar is holding on to its post-CPI gains, and 10-year
Treasury yields briefly tested 5-week highs.
The 10-year U.S. breakeven -- the market-based gauge of
expected inflation -- reached 2.56%, a level not seen in more
than eight years.
In Europe, Germany's benchmark 10-year Bund yield is at its
highest in almost two years, just 12 basis points away from
positive territory.
While Fed vice chair Richard Clarida has already said the
surprises from weak jobs data and a strong inflation won't not
dent plans to maintain support for the economy, markets will
keep a close eye on U.S. factory gate inflation data and weekly
jobless claims numbers later on Thursday.
Action on crypto currencies too. Bitcoin fell more than 10%
after Tesla CEO Elon Musk said his firm will no longer accept
bitcoin for car purchases, citing environmental concerns.
. His tweet comes less than two months after Tesla
began accepting bitcoin for payment.
In earnings, Italy's Pirelli topped earnings
estimates, helped by stronger sales of high-value tyres.
Oil retreated from eight-week high as concerns about the
coronavirus crisis in India, the world's third-biggest crude
importer, offset predictions of a demand rebound.
Key developments that should provide more direction to markets
on Thursday:
- Boeing Co wins approval from regulators for a fix
of an electrical grounding issue, clearing way for their return
to service.
- SoftBank shares slide after $23 bln buyback scheme not
extended
- UK house price gauge hits highest since 1988 - RICS
- Bank of England Deputy Governor Jon Cunliffe speaks on
digital currencies at 1200 GMT.
- Fed speakers include St. Louis President James Bullard
- Bank of Canada Governor Tiff Macklem to speak.
- U.S. 30-year bond auction
- Emerging markets: Central banks meet in Philippines,
Serbia, Chile, Peru, Mexico
- U.S. earnings; Alibaba, Walt Disney
- Europe earnings: EDP, 3i, Hargreaves Lansdown, BT,
Telefonica
(Dhara Ranasinghe)
*****
HERE COMES THE DIP! NOW, WHO'S REALLY BUYING? (0645 GMT)
Remember Monday? Global equity markets were trading at
record highs backed by a stellar Q1 earnings season and
inflation fears, were still just that, fears.
Now that the scenario of U.S. rising prices twisting the arm
of the Fed is gaining in probability, Wall Street is wavering.
On the bright side, the dip many were waiting for to get
back into the market is actually there.
Question is, who's really ready to buy?
Citi strategists wrote in a note published this morning that
given where we stand in the cycle, "a strong EPS rebound is
usually enough to counter investor fears about rising rates",
and that cyclical stocks typically outperform in year one.
So what would Citi strategists do?
"We would buy into any short-term dip in the markets and
cyclical stocks in particular", they wrote.
"It’s too early to give up on the recovery trade".
(Julien Ponthus)
*****
U.S. INFLATION SEEN HITTING EUROPEAN BOURSES (0535 GMT)
European bourses are seen opening lower after a rise in U.S.
inflation sent bond yields surging on worries the Fed might have
to move early on tightening.
U.S. consumer prices increased by the most in nearly 12
years in April following booming demand amid the reopening of
the economy.
Financial spreadbetters at IG expect London's FTSE to open
22 points lower at 6,983, Frankfurt's DAX to open 28 points
lower at 15,122 and Paris' CAC to open 23 points lower at 6,257.
(Joice Alves)
*****
Hargreaves Lansdown (HL.)
