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LIVE MARKETS-Major U.S. indexes post early gains; small caps outperform

Wed 30th December, 2020 3:32pm
* Major US indexes modestly higher; small caps outperform * Energy best performing S&P sector; comm svcs sole loser * Euro STOXX 600 index ~flat * Dollar hits fresh 2-1/2 year low; gold, NYMEX crude rise * US 10-Year Treasury yield ~0.93% Dec 30 - 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 MAJOR U.S. INDEXES POST EARLY GAINS; SMALL CAPS OUTPERFORM (1025 EST/1525 GMT) Major U.S. indexes are modestly higher about an hour into regular-session trading as investors continue to hope that COVID-19 vaccine rollouts, along with greater fiscal aid, would help the world's largest economy recover from a pandemic-fueled slump in 2021. .N Meanwhile, after a 2-day high-to-low drubbing of nearly 4%, the small-cap Russell 2000 .RUT , is snapping back more than 1% to around 1,987. That said, in order to get back on track for a 9th straight higher weekly close, the RUT will need to move above 2,003.9499. urn:newsml:reuters.com:*:nL1N2J811Y As for economic data, December Chicago PMI came in at 59.5 vs a 57.0 estimate. November Pending Home Sales month-over-month change came in at -2.6% against a Reuters Poll calling for a 0% change. urn:newsml:reuters.com:*:nL1N2JA0U5 Here is where markets stand in early trade: (Terence Gabriel) ***** S&P 500: DOUBT CREEPS IN (0900 EST/1400 GMT) After closing at a new all-time high on Monday, and making a fresh intraday high on Tuesday, the S&P 500 index .SPX ended yesterday's session down just 0.22%. With this, a contrarian measure of sentiment, based on the CBOE equity put/call (P/C) ratio, which hit a fresh multi-decade low earlier this month, has now risen to its highest level since November 17. (Click on chart below) Indeed, this measure's low readings can flag an excessively bullish, or especially complacent market, vulnerable to a reversal. That said, what may be a more robust bearish signal is when the 5-day moving average of the P/C ratio starts to rise, and then makes a higher-low, against a higher SPX closing high. This pattern developed ahead of declines of varying degree over the last 2 years or so, including the severe sell-offs in late 2018 and early 2020. As stands, in the wake of its 0.376 December 7th trough, this pattern may have formed again as the measure put in a higher low at 0.416 on December 23. It has since resumed its climb. Thus, this measure may be signaling cracks are forming in what has been steadfastly bullish sentiment. If so, instability may be just around the corner. This as a longer-term version of this measure is also flagging great complacency urn:newsml:reuters.com:*:nL1N2J314H, small caps .RUT were on their tip toes urn:newsml:reuters.com:*:nL1N2J811Y urn:newsml:reuters.com:*:nL1N2J4146 urn:newsml:reuters.com:*:nL1N2J91AA, the S&P has a momentum problem urn:newsml:reuters.com:*:nL1N2J20Y3, and Nasdaq futures NQcv1 need to watch their head. urn:newsml:reuters.com:*:nL1N2J90MX (Terence Gabriel) ***** INTEREST RATES UNNATURALLY LOW (1302 GMT) Let’s put it this way. Some analysts argue that central banks are wielding too much power over markets with their lower for longer rates strategy, which is currently aimed to prevent the adverse impact of the pandemic. But there is also a contrarian view, that says exactly the opposite, namely that Fed is a Wall Street’s hostage and this is making our economy more and more fragile. "A decade of interest rates far below the growth of nominal GDP and far below the return on capital, has sent asset prices into orbit," SG chief global forex strategist, Kit Juckes, says in a research note. Such a situation, in addition to being "lovely" for asset-owners, "increases inequality, fuels political division between asset-rich and asset-poor," he adds. But most importantly it "leaves the Fed hostage to equity markets because they can’t afford to trigger a correction in indices that would send the U.S. economy back into recession.” "We are heading into in 2021, bankrolled by the Federal Reserve’s commitment to cheap money, but far away from any broader equilibrium," SG says, underlining debt levels and asset valuations will remain high. According to SG, inflation has been muted for decades due to structural changes in the global economy, such as China’s entry in the world economy and Soviet Union’s collapse that boosted labour force in Europe. But the impact of these factors will not last forever. (Stefano Rebaudo) ***** BITCOIN'S FESTIVE FLOURISH (1133 GMT) Cryptocurrencies have never been far from the news in 2020 - and bitcoin is ending its scintillating year with a flourish. The biggest cryptocurrency hit an all-time high of just below $28,600, having nearly quadrupled this year. Since hitting $20,000 for the first time on Dec. 16, bitcoin has jumped by almost half. urn:newsml:reuters.com:*:nL8N2JA0MX Bitcoin has soared nearly 25% since Christmas Eve alone. Traders said thinner liquidity over the festive period and a limited supply of new coin coming to the market was helping drive the moves. The thirst for bitcoin has seen it become one of the best plays of the year, with copper and gold's gains of around a quarter each paling in comparison to bitcoin's 295% leap. While bitcoin's 2017 rally was fuelled by retail punters, bigger U.S. investors have led the charge this time around, drawn to its perceived inflation-hedging qualities. Its past potential for quick gains, as well as expectations it would become a mainstream payments method, have also fuelled its rise. (Tom Wilson) ***** WRAPPING UP 2020: DAX IS NO.1 IN EUROPE (1128 GMT) Today is the last session of the year for many markets in Europe and performances across the region are unlikely to change much from we stand at the moment, barring the unexpected. That said it's not unfair to say that among big equity benchmarks in Europe Germany's DAX .GDAXI deserves the title of 2020 winner and that for more than one reason. Here are a few: * Best performer among mostly negative moves: up 4% YTD * It has recovered to pre-pandemic levels * DAX hit new record highs twice this week * The surge came despite a rising euro, which tends to be a headwind for the export-oriented index With such a premise, 2021 looks promising. BofA has an overweight rating on German stock on expectations of 10% out-performance by Q3 2021 driven by a vaccine-enabled economic recovery. urn:newsml:reuters.com:*:nL8N2IO2HR Here's your chart and more reading on the DAX further below: 2021: the year the DAX/Merkel love story ends urn:newsml:reuters.com:*:nL1N2IV1NE Euro gains, DAX pains? urn:newsml:reuters.com:*:nL8N2IU1MQ (Danilo Masoni) ***** SEEKING RISKIER ASSETS... BUT AMONG BONDS (1019 GMT) Risk-appetite is supposed to have been growing since the announcement of effective vaccines on Nov. 9, but it seems investors are not confident enough as they continue to pour money into fixed income, while pulling money out of equities. According to BofA numbers, in the week ending on December 23 "equity funds suffered a large outflow, as a worsening state of the pandemic in Europe pushed investors to reduce exposure to riskier assets." And this is part of a trend as you can see in the chart below. But in the fixed income world there is a “barbelling trend” emerging in the last couple of months, “with inflows reaching the wings of the risk spectrum,” a BofA research note says. High grade funds recorded an outflow last week, the ninths in the past 15 weeks, while high yields staged their seventh weekly inflow in a row. Strong performance also for emerging markets debt funds, extending their streak of inflows to 12 weeks, while commodity funds recorded their sixth straight outflow. On the duration front (chart below), the underperformance of short-dated investment grade funds, which recorded a large outflow, was due to an individual single fund. (Stefano Rebaudo) ***** EUROPE AT THE OPEN: STAYING HIGH (0840 GMT) Shares in Europe are off to a rather muted start but optimism over a big profit recovery next year is helping major country benchmarks stay just below recent highs. The pan regional STOXX 600 .STOXX index was last up 0.2%, just below the fresh 10-month peak hit on Tuesday. The index is up 3.7% so far this month after a stellar +13.7% in November. Germany's DAX .GDAXI traded near its record peak and London's FTSE 100 .FTSE also remained close to its March levels, both up around 0.2%. In sectoral moves, tech .SX8P was in demand but also cyclical sectors such as banks .SX7P and COVID-hit travel and leisure .SXTP . Here's your snapshot: (Danilo Masoni) ***** BULLS UNDETERRED (0815 GMT) Thanks to Mitch McConnell, the U.S. Senate probably won't debate the measure upping stimulus payments to $2000 per head this side of the New Year, but the Senate Majority Leader hasn't managed to knock stock markets or dent expectations of a global growth rebound. The optimism is reflected in world stocks just off record highs, firmer Wall Street futures and in the U.S. dollar index plumbing new 2-1/2 year lows; the euro is closing in on $1.23, a level last seen in April 2018. The greenback is also down against almost every emerging market currency too, from the yuan to the Turkish lira. Oil remains above $51 a barrel, up more than 200% from March lows while growth-sensitive copper and aluminium are near multi-year highs. On the Brexit front, the UK Houses of Parliament will debate and pass the trade deal agreed with the European Union last week despite grumblings from Northern Irish lawmakers. The pound is holding above $1.35. Good news too from Spain where Unicaja and Liberbank have approved a merger that creates the country's fifth biggest lender, marking an acceleration of the sector's consolidation following the recent Caixabank and Bankia M&A deal. Key developments that should provide more direction to markets on Wednesday: -UK Houses of Parliament to debate and vote on Brexit deal -Britain has approved a coronavirus vaccine developed by Oxford University and AstraZeneca urn:newsml:reuters.com:*:nL8N2JA0KE -U.S. detects first case of COVID-19 variant after it was found across Europe, in Canada, Australia, India, South Korea and Japan urn:newsml:reuters.com:*:nL1N2J90TJ -Indonesia and South Korea's LG Group have signed a memorandum of understanding on a $9.8 billion electric vehicle battery investment deal urn:newsml:reuters.com:*:nL4N2JA0JF -China and EU may clinch a deal giving EU firms better access to Chinese markets (Sujata Rao and Danilo Masoni) ***** <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ open https://tmsnrt.rs/3aUCAbE flows https://tmsnrt.rs/3aWGm42 flow.maturity https://tmsnrt.rs/3o1zIx4 dax https://tmsnrt.rs/2WVw3oF bitcoin https://tmsnrt.rs/2KE1Sjy SPX12302020 https://tmsnrt.rs/38LRfDc earlytrade12302020 https://tmsnrt.rs/3hsQ8w5 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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