* European stock on the rise
* Autos led gains up 2.5%, miners up 1.5%
* Shares in Ultra Electronics jump 33% on Cobham takeover
* ASML shares hit fresh record
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BANK STOCKS FOLLOW BOND YIELDS, BUT…(1135 GMT)
We all know that bond yields and specifically U.S. yields
are driving the European bank stock index, but the issue becomes
trickier if we look at relative valuations of single stocks.
So, we might use some insight from Credit Suisse which says
that “it is recovery sensitivity rather than rates sensitivity
that is driving relative performance on a stock level.”
In fact “names most NII (net interest income) sensitive to
the changes in the yield curve have generally underperformed.”
But “that rate sensitivity will become an increasingly
dominant theme at some stage, and a key, if not the key driver
likely towards the end of the year or over the first part of
2022,” Credit Suisse analysts say.
“For stock picking, we would think there should be less than
12 months before the expected rate hike, and recovered earnings
should be priced so that rates-driven upgrades become the
dominant earnings revision drive,” they add.
The bank remains overweight on banks on reflation as it
confirms its year-end target for U.S. 10-year yields at 1.8%.
Its top picks are BNP, LLOY, ING
, and SAN for quality reflation, and UBS
ANXIETY REMEDY (1118 GMT)
The week started with a bang with global stocks selling off
massively amid increasing anxiety on the risks the COVID-19
Delta variant could pose on reopenings, but then markets
As in other selloffs in the past 12 months, investors took
the opportunity actually to buy the dips, making the Monday
correction short lived.
“Many of our clients are on vacation, the few we spoke to
this week did not feel overly concerned,” say Barclays analysts.
The EUROSTOXX volatility index, a traditional gauge of
investors’ anxiety in Europe, jumped to its highest point since
February to return to where it was last week.
The pan European Index is now only a few points
from all time highs, having recovered Monday losses.
While investors are not seeing “fundamentals” to justify
another aggressive selloff in the next few weeks, volatility
tends to be particularly troublesome during the summer because
of poor liquidity.
Hence Barclays recommends holding some volatility hedges “as
we head into the tricky August/September period”.
It is advocating selling pricey cyclicals and reducing
underweights in defensives and growth.
It acknowledges though that finding volatility hedges ain’t
a simple task.
“Monday thus served as a reminder that there aren’t many
places to hide in a broad market sell off”.
JAPAN: NOT JUST OLYMPICS (0953 GMT)
Olympics do matter as concerns that the event could worsen
Japan’s COVID-19 outbreak and lead to political instability have
weighed on equity markets.
But it’s not just that, and the recent underperformance
might have created a buying-the-dip opportunity.
“Given this uncertainty has already been priced into Japan’s
market, whether the games are staged or not has little impact on
our portfolio,” Columbia Threadneedle, global head of equities
Daisuke Nomoto, says.
Given lagged vaccination, Japan has underperformed global
peers year-to-date, “although we can expect this gap to narrow
as the domestic vaccine rollout gathers momentum,” he adds.
Besides, low mortality rates show the effective handling of
We “believe Japanese equities are uniquely positioned to
capitalise on both cyclical tailwinds – accelerating vaccination
rollout and sensitivity to the global growth recovery – and
structural tailwinds,” he argues, after mentioning evolving
technology and corporate governance reform as game-changers.
STOXX CARRIES ON AMID INDICATOR GALORE (0930 GMT)
There was a real flurry of macro indicators this morning but
it really didn’t seem to have much influence on the course of
the earnings-focused STOXX 600, or any regional bourse for that
Some of the data were very good, some much less so but in
the end the broad European stock market is cruising up 0.6%, two
little points from its record high and on course to close on a
Anyhow, data showed UK growth slowed sharply in July with
the COVID ‘pingdemic’ disrupting businesses and social life.
There were however better news with a rise in consumer
sentiment and retail sales volumes standing 9.5% above their
pre-pandemic level, bolstered by a jump in food and drink
spending as soccer fans enjoyed the Euro 2020 tournament.
Here’s the FTSE 250 this morning and here’s some reading:
UK growth slows sharply in July as COVID ‘pingdemic’ hits
The picture was much brighter for Germany, the euro zone’s
powerhouse, with PMIs hitting its highest level in nearly a
quarter of a century.
The mighty DAX wobbled a bit but is roughly on a 0.6% track,
very much in synch with the rest of the market.
France was less lucky with business activity weakening by
more than forecast in July as shortages of materials and
transportation delays impacted firms but the CAC 40
is outperforming nonetheless, boosted by Airbus notably.
EUROPE LED BY AUTOS, TELCOS AND MINERS (0748 GMT)
European stocks are in the black as a bounceback after the
‘Delta-dip’ seen on Monday continues, with the Stoxx 600 set to
close a volatile week in positive territory.
It might be a typical reflation trade day with basic
materials and autos stock indexes among the best
performers, while the the Stoxx 600 is rising 0.5%.
Telcos are also on the rise, up 0.8%, after
better-than-expected results drove Vodafone shares up
Analysts continue to see a volatile summer as equity indexes
across the globe are hovering around all-time highs, while the
H2 narrative about the economy remains uncertain.
Deutsche Bank analysts say they see “risk appetite starting
to show signs of slipping back again after the recent
At the same time, “residual concern about the delta
variant’s spread and the prospect of tighter restrictions
remained in the background for a number of key economies.”
But even with vaccines avoiding new restrictions to
developed economies and the ECB pledging lower for longer
interest rates, worries about the resilience of the
post-pandemic economy remain.
LOWER FOREVER FOR ‘GENERATION T’? (0700 GMT)
It’s now most likely those born in the euro zone in 2011
won’t get to see an interest rate hike until their teens
(imagine the FOMO!).
Indeed, the European Central Bank said on Thursday it would
not hike borrowing costs until it sees inflation reaching its 2%
And because it only forecasts prices to rise by 1.4% in
2023, the first rate hike since the debt crisis isn’t expected
before 2024 when ‘Generation T’ (for former ECB President
Jean-Claude Trichet) will reach teen age.
Truth be said, expectations were low prior the ECB meeting
with Paul Donovan, Chief Economist at UBS GWM, sarcastically
writing that markets would be eager to know how the ECB intended
to miss its new target this time.
Negative rates, trillions of euros worth of monetary and
fiscal stimulus, labour shortages, production bottlenecks, a
global shipping container shortage, commodities and oil prices
rising and still the outlook for inflation is muted.
Now with growing fears the Delta variant could slow down the
pace of the recovery, investors find themselves paying to hold
Germany bonds with 10-year yields at -0.41% and near their
lowest levels since February DE10YT=RR.
A slew of business activity surveys due on Friday are
expected to show a slight softening of activity in Europe. That
could weigh on the euro, which fell after the ECB meeting and is
trading at $1.1773 — not far from recent three-month lows.
Attention is expected to shift to the U.S. ahead of next
week’s Federal Reserve’s meeting.
News on Thursday of an unexpected hike in the number of U.S.
workers filing first-time applications for unemployment didn’t
derail Wall Street, which saw its three major indexes end the
session within 1% of their record closing highs.
Asia shares slipped overnight, but futures for Europe and
the U.S. point higher, meaning losses sustained during Monday’s
Delta variant selloff have been recouped.
Key developments that should provide more direction to markets
– UK consumers back to pre-pandemic confidence (Full Story)
– POLL-S.Korea likely posted biggest annual growth since 2010 in
– UK June retail sales
– July PMIs: France, Germany, Sweden, euro zone, UK
– Vodafone posts 3.3% rise in Q1 revenue as Europe returns to
– Eyeing IPO, Geely’s Volvo Cars swings to profit in H1
– Russia tipped to hiked rates.
EUROPE SET TO CLOSE THE WEEK HIGHER (0619 GMT)
European stock futures are slightly positive and set to
close in the black after a volatile week amid fading worries
about the Delta variant.
Investors are increasingly convinced the global economic
expansion will move forward despite the pandemic.
Lacklustre economic data didn’t prevent Wall Street from
closing higher with investors back to buying growth stocks,
while Asian stocks fell amid worries about vaccination rates.
The ECB confirmed its dovish stance, failing to boost
equities, while 10-year Bund yields got back to the critical
level at -0.4%, not far from this week’s low.