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Market Cap £18.47bn
Enterprise Value £17.68bn
Revenue £43.62bn
Position in Universe 51st / 3904

LIVE MARKETS-Battery makers: the challenge of keeping leverage down

Thu 25th February, 2021 1:47pm
* STOXX 600 turns negative * Energy leads sectoral gainers * Tenaris boosted by strong update * Powell reaffirms rates will stay low Feb 25 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at BATTERY MAKERS: THE CHALLENGE OF KEEPING LEVERAGE DOWN (1347 GMT) Battery demand is on the rise as auto companies seek to produce more electric vehicles. Still the strong production spike comes with pricey demand for upfront investment. Will battery producers be able to scale up production without putting their credit ratings at risk? The short answer is: it will be challenging. "An elevated level of investment associated with rapid battery business expansion comes with operational risks and the challenge of maintaining healthy leverage, all of which have the potential to weaken credit quality," Moody's says. One of the top priorities for battery producers will be to keep close relationships with car makers in order to secure good corporate credits. "Solid relationships with automakers that have a clear strategy to expand EV sales will ensure stable revenue and profit for the battery makers." The rating agency marked EV battery makers Contemporary Amperex Technology Co (Baa1) LG Chem (Baa1) with stable outlooks. While it has a negative outlook on Panasonic Corporation (Baa1) and SK Innovation (Baa3). Those fours companies together account for more than half of global battery production. Moody's expects LG Chem and Panasonic to keep adjusted debt/EBITDA between 2.0x and 3.0x in the next 12-18 months. Contemporary Amperex Technology's net cash position will help its credit quality, while SK's "higher leverage against its peers reflects weakness in its refining and petrochemical businesses, and heavy capital spending". (Joice Alves) ***** FOLLOW THE MONEY (1152 GMT) Whether rising yields are good or bad for stocks does not have a straight answer but following money flows gives interesting indications of how it could pan out. According to Barclays flows data, equities have been in great demand recently, but fixed income remains crowded. So, the “great rotation” might be on its way, but it has not started yet. “Equity inflows are mainly coming from money market funds (ie cash being put at work), not from fixed income – bonds and credit have not been sold yet despite the move up in rates,” Barcalys analysts say in a research note. “Fixed income is more crowded than equities, and thus looks more vulnerable to inflation return and tapering fears.” Tech remains well bid in terms of flows, “but recent price action shows the space looks increasingly vulnerable to rising yields,” they add. More Tech selling could ultimately benefit Europe. The region remains under owned, although Italy and UK domestic plays had big inflows recently. In the charts below equities inflows coming from money markets and ‘taper tantrum’ in 2013 fuelled equity inflows and bond outflows. (Stefano Rebaudo) ***** U.S. 10-YEAR YIELD: PAIN THRESHOLD AT 1.5%? (0927 GMT) As some analysts put it: it's not easy to scare the bears. In fact, the wave of selling on government bond in the U.S. and in Europe is still ongoing, with analyst wondering what the breaking point of this trend is. It shouldn’t continue for long as the Fed said repeatedly that interest rates will be lower for longer and the ECB warned last week it was closely monitoring nominal yields. The "everything up but bonds" trade is “driving enormous potential energy into this market, as yields have risen very sharply and can only head so high before triggering some level of unease across markets,” analysts from Saxo Bank say. “We are getting close to one important pressure point in U.S. yields – the 1.50% ten-year benchmark, as this area marked the cycle lows in yield for that benchmark yield prior to the pandemic outbreak,” they add. U.S. 10-year Treasury yield US10YT=RR is up at 1.434%agaisnt yesterday's close at 1.389%, while Germany’s benchmark 10-year government bond yield DE10YT=RR is at -0.270% against -0.304% yesterday. (Stefano Rebaudo) ***** MINERS, BANKS, ENERGY LEAD THE WAY (0851 GMT) With inflation jitters calmed down for now after Powell's reassuring remarks, investors can now focus again on the plays that most are going to benefit from a recovery out of the COVID-19 economic downturn. Energy .SXEP stocks, miners .SXPP and banks .SX7P are all rising more than 1% in early deals, helping lift the STOXX 600 .STOXX regional benchmark up 0.4%, while offsetting some weakness among defensive plays. Positive soundings from the earnings season are also giving a helping hand. Steel pipe maker Tenaris TENR.MI is rallying 11% to the top of the STOXX after a pick up in drilling activity helped it beat expectations in Q4 and ease the hit caused by the pandemic. M&A is in play too. DS Smith SMDS.L is up 9% on reports Mondi MNDI.L is weighing a $7 billion takeover for the UK packaging company. As you see in the snapshot the only European index in the red is the defensive SMI. (Danilo Masoni) ***** MORNING BID: POWELL REASSURES STOCKS, GAMESTOP FRENZY RETURNS (0800 GMT) Reassuring words from Federal Reserve chief Jerome Powell that rates will remain low for a long time means stock markets are rallying again. Asian shares, excluding Japan, are up 1.6% .MIAPJ0000PUS , Japan's Nikkei is back above the 30,000-mark, European stocks are tipped to open higher and U.S. stock futures are up. And Reuters polls forecast the equity bullrun to continue at least another six months. The Fed's dovish message is resonating in currency markets too, with the dollar languishing near three-year lows. markets are still not playing ball. U.S. 10-year Treasury yields are up 3 bps at 1.42% US10YT=RR , near one-year highs. Investors clearly don't believe the Fed will be able to keep rates for as low as it would like. The view might be that inflation will be a bigger problem than anticipated So U.S. yields are on course to end February with a 32 bps rise, the biggest monthly rise since late-2016 -- when Donald Trump's election win was encouraging reflation bets. And so this morning brings fresh central bank angst over rising yields; ECB board member Isabel Schnabel is already out on the wires saying the bank will fight any big increases in inflation-adjusted interest rates.*:nL8N2KV1RF And are "gamestonks" back? GameStop GME.N the videogame retailer at the heart of January's retail trader frenzy saw shares soar nearly 104% on Wednesday and this morning, its Frankfurt-listed shares have already jumped 85%*:nL1N2KU3K7 Key developments that should provide more direction to markets on Thursday: - StanChart STAN.L restores its dividend, reaffirms long-term profit goals.*:nL1N2KV09J - Anheuser-Busch , the world's largest brewer, reports a higher-than-expected Q4 core profit.*:nL1N2KV0EX - European earnings due out: ASM, Saint Gobain, Ferrovial, Evraz, St James Place,Telefonica, Anglo American, Centrica, BAE, Veolia, Suez, Bayer, Adecco, Axa -Bank of Korea left interest rate unchanged at 0.5% as expected*:nL1N2KU06H -Fed speakers: New York Fed's John Williams, Atlanta Fed's Raphael Bostic -ECB Vice President Luis de Guindos speaks at 1500 GMT -U.S durable goods orders Jan/GDP second estimate for Q4/Core PCE/Initial jobless claims -US corp earnings: Bestbuy, Domino's pizza, Papa John's (Dhara Ranasinghe) ****** EUROPE REGAINS BUOYANCY - THANKS TO POWELL (0649 GMT) European stock markets have regained some buoyancy but to do so they needed another shot of reassurances from Fed Chair Jerome Powell, who reaffirmed interest rates in the world's No.1 economy would stay low for a long time, calming inflation fears. Futures on the Euro STOXX 50 STXEc1 are rising for a second straight day, last up 0.6%, and getting closer to the 11-month high hit earlier in February. DAX futures FDXc1 meantime are just 0.9% away from their last all-time peak. In a second day of testimony in Washington, Powell reiterated the Fed's promise to get the U.S. economy back to full employment and to not worry about inflation unless prices rose in a persistent and troubling way.*:nL1N2KU1XL As a result of his remarks a selloff in technology-related stocks eased, helping Wall Street ended higher overnight. Asian shares jumped too. Back to Europe there a number of earning updates that could liven up the session, as the Q4 reporting reason, which has been better than expected so far, enters its final stages. Check out these upbeat looking headlines: * StanChart restores dividend, reaffirms targets as COVID-19 halves profit*:nL1N2KV09J * Adecco says latest COVID-19 lockdowns not having big impact so far*:nL8N2KV1G4 * AB InBev sees improved 2021 after end-2020 earnings beat*:nL8N2KT5MD * France's Safran sees gradual recovery after crisis-hit 2020*:nL1N2KV09J But there are also not-so-good-looking ones: * Axa posts 18% net income drop as COVID-19 claims weigh*:nP6N2CI023 * Satellite firm SES sees lower earnings, sales in 2021*:nL8N2KV1H8 * Belgian cinema group Kinepolis posts first annual loss in over decade*:nL8N2KV1FU (Danilo Masoni) ***** <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Reuters Poll: Global stock market outlook open flow ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
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