LIVE MARKETS-"We remain dollar bears"

* European shares up 0.4%

* U.S. stimulus bets keep mood positive

* Tech leads gainers, up 1.9%

* ECB keeps stimulus unchanged

* Wall Street seen edging higher

Jan 21 - 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

"WE REMAIN DOLLAR BEARS" (1304 GMT)

After being on downward path since March the dollar has
regained some mojo this month.

That has somewhat challenged the consensual downbeat view on
the greenback and with it faith that dollar-weakness
beneficiaries will flourish this year.

That said it really looks premature for the dollar bears to
throw in the towel.

"We remain dollar bears," said Credit Suisse, noting how the
dollar's recovery this month was a just "bear market rally.

"We are comfortable remaining overweight USD-weakness
beneficiaries, including GEM equities both directly and through
DM-listed EM exposure, and European mining. We remain cautious
on a number of the USD-exposed areas, such as European pharma,"
strategists at the Swiss bank said.

In more detail on European stocks, they said the most
sensitive beneficiaries are those with more dollar costs than
revenues such as ABF, M&S and Electrolux.

Among the relative losers they mention Infineon, Richemont,
Atlas Copco, and Nokia.

In this chart you can see how these stocks have performed
over the last year -- and not necessarily the dollar-weakness
beneficiaries have done better.

(Danilo Masoni)

*****

THE ELEPHANT IN THE ROOM (1101 GMT)

How much is enough?

With the Bank of Japan’s equity holdings ballooning to 45
trillion yen ($435 billion), according to estimates by RBC
Capital Markets, or more than 6% percent of the Japan’s total
equity market capitalisation, investors are wondering when will
the central bank start to unwind its massive equity holdings.

True, the BOJ's equity holdings are nowhere near its ETF
holdings which account for roughly 80% of the total market but
its growing presence is numbing markets. Daily realised
volatility on the Japanese stock market is hovering
above a 2020 low.

The Bank of Japan’s program to buy ETFs and keep a tight
grip on bond yields is likely to come under review at a March
policy review, according to sources.

With the equity markets rallying under their own steam,
there is no reason for the BOJ to continue building up their
dominant position in the equity markets.

But the trick will be to introduce flexibility to scale back
purchases without introducing the risk of tighter policy,
according to Adam Cole, chief currency strategist at the bank.

(Saikat Chatterjee)

*****

AUTOS HOLD KEY TO DRIVE EUROPE OUT OF PROFIT RECESSION (1007
GMT)

The Q4 reporting season will see Europe suffer another big
profit drop but investors are looking beyond that as the
recovery from the COVID-19 downturn is gradually taking shape in
what will drive earnings into a massive turnaround.

Oct-Dec quarter is expected to be the last negative quarter
for Europe Inc (-26%). In Q1 there will be a 44% profit jump
followed by an even larger surge of 81% in the following
quarter, according to the latest Refinitiv I/B/E/S estimates
this week.

But what exactly is going to drive the region out its profit
recession? Some more granular forecasts may hold the answer.

The cyclical consumer sector, which includes auto stocks, is
expected to post an 3118% profit gain in Q1, by far the largest
increase in the STOXX euro zone earnings, followed by
industrials (643%) and financials (2017%), according to I/B/E/S.

Drilling the down to single stocks here the three main
findings for that quarter:

* Daimler (1471%), Fiat Chrysler (177%) and Volkswagen
(602%) are
the largest contributors in cyclical consumers

* Within industrials, Airbus (356%) is the biggest

* In financials, BBVA (131%) is the largest

In the chart below you can see how auto stocks,
which have just hit a 14-month high, have recently seen their
biggest earnings revisions in a decade.

(Danilo Masoni)

*****

ECB: ANY QUESTION ABOUT ITALIAN SPREAD? (0951 GMT)

There is broad consensus that today’s ECB policy meeting
will be uneventful, with investors focusing on central bank
communication.

But, after the political turmoil in Italy, the new hot topic
seems to be whether the central bank stepped in or would do so
in case of a political crisis in Italy coupled with a rise in
its government bond yields.

Little happened recently as prime minister Giuseppe Conte
won a confidence vote allowing him to remain in office after a
junior partner quit his coalition last week.

But analysts expect the spread between German and Italian
government bond yields to widen up to 200 basis points in case
of snap elections, with just some of them assuming the ECB would
have skewed its purchases in favour of BTPs.

There may be attempts in the Q&A today to ascertain “whether
the PEPP backstop for European government bond fragmentation
applies if the cause is idiosyncratic political risk (e.g.,
should there be a surprise early election in Italy),” a Citi
research note says.

“Tolerating a significant move higher in yields now would
challenge the success of any promise to overshoot inflation,”
BofA analysts say in a research note, adding that the weekly
purchases, in the context of the Italian political turmoil,
“will be an important input to that assessment.”.

In the chart below you can see the widening and tightening
of the spread between German and Italian government bond yields
during and after Italian political drama.

(Stefano Rebaudo)

*****

OPENING SNAPSHOT: RISK-ON MODE (0831 GMT)

Some analysts are wondering how long this sort of honeymoon
between U.S. President Joe Biden and Wall Street is going to
last as a quick approval of a $1.9 trillion aid package cannot
be taken for granted.

But for the time being stimulus hopes continue to boost
risk-sentiment and stock prices across the globe. In Europe, the
STOXX 600 index is up 0.5% led by tech stocks,
up around 1%.

Among single stocks, Sage Group shares are up 5.4%
after its trading update, while Cellnex rises 3.5%
after a deal with Deutsche Telekom to combine Dutch
cell phone tower businesses.

(Stefano Rebaudo)

*****

THE DAY OF THE CENTRAL BANKS (0753 GMT)

Vaccinations are just getting off the ground so there is not
a whole lot central banks can do at this point. The Bank of
Japan confined itself to marginally upping 2021 GDP growth
forecasts but held off extending the target band for 10-year
yields as had been speculated.

Similarly, it's too soon for the European Central Bank to
act after it extended asset purchases last month but after five
straight months of negative inflation readings, markets will
seek the ECB's views on euro strength, how much of its emergency
stimulus "envelope" it might spend and whether yield -- or
rather spread - control is likely.

Nor are policymakers expected to do much in Norway, South
Africa and Turkey, though there is a slim chance of a hike in
Turkey where the new governor has hiked rates 675 basis points
since early November.

Back on markets, so much for Donald Trump's warnings of a
stock market crash should Joe Biden become president -- Wall
Street scaled new record highs after Biden's inauguration and
futures imply further gains ahead in New York as well as across
Europe.

Watch out for weekly U.S. jobless figures which are expected
to stay close to the one million-mark, reinforcing the need to
quickly get Biden's planned stimulus package off the mark.

In keeping with the risk-on mode, the dollar is slipping,
benefiting commodity currencies such as the Aussie and Canadian
dollars. Sterling is above $1.37, near 2-1/2-year highs.

Key developments that should provide more direction to markets
on Thursday:
-European Central Bank
-Norges Bank
-UK CBI business sentiment/new orders
-South African Reserve Bank
-Central Bank of Turkey
-U.S. initial jobless claims
-US Treasury to sell $15 billion in 10-year TIPS
-U.S. earnings: Coca Cola, American airlines, Southwest
Airlines, American Express, Carnival Corp, IBM, Intel
-Europe earnings: Spain's Bankinter said 2020 net profits fell
42.4% vs previous year
-Julius Baer shares marked down 1% after industry watchdog FINMA
launched proceedings against a senior manager and reprimanded
two others over failure to prevent money laundering.

(Sujata Rao)

*****

U.S. STIMULUS IN FOCUS (0633 GMT)

European stock futures are in the black as stimulus hopes
are supporting risk-appetite globally after Joe Biden yesterday
was sworn in as the 46th U.S. president.

Some analysts worry that his plan’s $1.9 trillion price tag
would be challenged in Congress, but Republicans signalled a
willingness to work with the President to fight the adverse
economic impact of the pandemic.

Also a relief over an orderly transition of power in the
U.S. props up risk-sentiment, while concerns about rising taxes
and more regulations remain in the background.

(Stefano Rebaudo)

*****