* STOXX 600 dips 0.8%
* Basic materials and oil and gas stocks down 2%
* Wall Street futures lower
Jan 15 - 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
WAIT AND SEE MODE (1221 GMT)
Some investors are probably taking the view that the flow of
good news is over, at least for a while, after the announcement
of U.S. stimulus package. So they might decide for a
wait-and-see strategy for the coming months.
The question is, when will it be time to start increasing
exposure to equities again?
BofA analysts expect a rebound in the Euro area PMI to 60 by
mid-year supported by stimulus and by a strong external growth
environment, assuming that vaccine supply shortages in the euro
area are tackled by the summer.
Markets are already priced for a sharp growth acceleration,
even though tightening restrictions near term and the Euro
area's slow vaccine roll-out mean that this is likely to
materialize only from Q2 onwards, they say in a research note.
BofA macro projections imply no further upside for the Stoxx
600 until early Q2, followed by a renewed 7% upside to 440 by
July. Up until then BofA is marketweight on cyclicals and
defensives, but overweight value/growth.
In the chart below cyclical stocks that have not priced in
the expected economic recovery.
(Stefano Rebaudo)
*****
RISING YIELDS WON’T HURT EQUITIES (1059 GMT)
Interest rates have been in the financial markets’ spotlight
recently, since U.S. Treasury yields start climbing on
expectations of more fiscal spending funded by debt.
And the general idea that stock prices will suffer from a
rise in interest rates is up to debate right now.
“Bond yields rising is a double-edged sword, but so long as
the move is orderly and due to the right reasons (i.e. stronger
nominal growth), it should be a positive for equities,” a
Barclays research note says.
Equities and yields followed different patterns in the last
few years but “a return to the normal pattern of rising equities
and rising yields should be expected in a typical early cycle.”
That should be the case now, with borrowing costs rising
along with stocks on expectations of a stronger economic growth.
For the future “our view is that as long as earnings
momentum improves and central banks do not rush to unwind
current accommodative policy, a steady move up in yields can go
hand in hand with rising equities.”
(Stefano Rebaudo)
*****
OPENING SNAPSHOT: SELLOFF IN MINERS, OIL & GAS (0824 GMT)
Basic materials and oil & gas stocks came under selling
pressure as a surge of coronavirus cases in China spread
concerns about commodities demand.
In the meantime, European investors are taking some profits
off the table as they are inclined not to expect a steady flow
of good news in the near-future after U.S. president-elect Joe
Biden announced his $1.9 trillion stimulus package, while virus
trajectories are threatening a global economic recovery.
They wonder if a narrow majority in the Senate will be
enough to get the approval of the U.S. package and how much
Biden will need to increase taxes to fund his plans.
The good news is that Fed Chair Jerome Powell said it’s too
early to think of any tapering in bond buying, capping a
possible U.S. Treasury yield rise.
The Stoxx 600 index is down 0.3%, with oil and gas
and miners down respectively 0.8% and 0.7%.
Among single stocks a batch of UK companies are up after
their trading update with Aveva rising 6%, Meggitt
up 2.6%, Ashmore up 1.2%.
(Stefano Rebaudo)
*****
TAPER TANTRUM? NOT JUST YET (0748 GMT)
Finally, markets have the news they've been waiting days
for: U.S. President-elect Joe Biden is proposing a $1.9 trillion
stimulus plan to jump-start the world's largest economy and
accelerate its response to COVID-19.
This is at the upper end of expectations. But in a
buy-the-rumour, sell-the-fact reaction, equities have eased a
touch and U.S. Treasury yields, which have shot higher on belief
that a big fiscal package will boost inflation, are also off
recent highs.
And for those looking for a taper tantrum, Federal Reserve
Chair Jerome Powell is not buying it, saying late on Thursday it
was too early for the Fed to adjust its monthly bond purchases.
His comments have paused a rally in the dollar for now.
Elsewhere, Bitcoin is recovering after a nearly $12,000 plunge
from the record $42,000 hit last week.
Concern over rising COVID-19 cases in China and signs of
fresh strains with Washington may also explain signs of caution
in markets. Executives of state-owned enterprises, officials of
the Chinese Communist Party and military, and oil giant CNOOC
will face new restrictions from the Trump
administration for allegedly using coercion against states with
rival South China Sea claims.
In Europe, political uncertainty in Italy remains in focus
although a snap election is still viewed as unlikely. Focus also
turns to Germany, where chancellor Angela Merkel's Christian
Democratic Union party on Saturday votes for a new leader and
will be a likely contender for next Chancellor.
Shares in German software group SAP are up 2% in
pre-market trade after preliminary annual results came at the
high end of guidance.
JP Morgan, Citigroup and Wells Fargo
report fourth-quarter results. Expectations are for financials
earnings to have dropped more than 6% but that's better than
what's forecast for the S&P 500 overall.
Key developments that should provide more direction to
markets on Friday:
- UK economy shrinks 2.6% in Nov, first drop since April.
- Italy's Renzi does not believe PM Conte has backing to win
no-confidence vote - La Stampa.
- U.S. retail sales, PPI 1330 GMT
- Fitch to review UK credit rating
- An emerging market rally lifted assets under management
(AUM) at money manager Ashmore by 9% in Q4
(Dhara Ranasinghe)
*****
EUROPE IN THE RED ON BIDEN’S CHALLENGES, PANDEMIC
European stock futures are in the red as markets focus on
the challenges U.S. president-elect Joe Biden will face in
getting approved a $1.9 trillion stimulus package, while
pandemic concerns continue to weigh on sentiment.
Investors are also concerned about possible tax increases
they expect to be part of Biden’s future plans.
China reporting the highest number of COVID-19 cases in more
than 10 months on Friday, with more than 28 million people under
lockdown, is dampening risk-appetite across the board.
(Stefano Rebaudo)
*****
Ashmore (ASHM)
