Live Markets: BoE action
04/02/2021 12:59
* European shares up 0.1%
* BoE: banks need 6 months for any sub-zero rates
* Healthcare, travel stocks lead sectoral gainers
* Deutsche Bank falls despite first profit since 2014
* U.S. futures edge up before jobless claims data
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BOE ACTION (1253 GMT)
Some central bank action has spiced things up at around
midsession trading here in Europe.
The Bank of England kept its stimulus programmes unchanged
as it expects an economic recovery later this year, and said UK
banks would need at least six months to prepare for any cut in
interest rates to negative territory. ID:nL8N2KA2SU
The statement caused quite some action.
Money markets pushed out their expectations for negative
rates all the way out to February 2022, while bond yields rose
to November levels and bank stocks pared their losses, briefly
turning in positive territory. urn:newsml:reuters.com:*:nL8N2KA4SZ
UK stocks meantime weakened to hit fresh session lows.
In the charts you see the ten-year gilt yields jumping.
(Danilo Masoni)
*****
POSSIBLE SCENARIOS ON CHINA’S LIQUIDITY (1225 GMT)
China liquidity worries are sending jitters across global
markets as its monetary conditions are affecting economic growth
and investors risk-appetite globally.
China's short-term money rates eased to two-week lows on
Tuesday as signs of liquidity tension in the interbank money
markets started to fade urn:newsml:reuters.com:*:nL1N2K8079, but investors are
wondering about what is going to happen next.
According to UBS, People's Bank of China (PBOC) will take
measure to ease tensions in the money market, but “the focus of
macro policies is shifting towards controlling risk and
containing leverage as the economy recovers.”
“Notwithstanding the expected liquidity offering ahead and
around the Chinese yuan renminbi (CNY), we expect China's credit
growth to slow notably in the coming months,” UBS says.
Some in the market are looking for special and temporary
liquidity arrangement such as Contingent Reserve Arrangement
(CRA) and targeted Reserve Requirement Ratio (RRR) cuts, “we
think the probability of such arrangements is low, as they may
send easing signals not aligned with the general policy
direction,” it adds.
(Stefano Rebaudo)
*****
FROM TRUMP TO MUSK (1122 GMT)
Not so long ago, checking out Trump's Twitter account used
to be a daily morning routine for many journalists who couldn't
afford to miss a bombshell statement from the former U.S.
President.
Nowadays, failing to check out Elon Musk's latest tweets
means FOMO-fuelled investors missing out on the next speculative
retail frenzy.
There's already a long list of assets being propped up by
just by a mention of the Tesla chief like GameStop or bitcoin
even when it's a misunderstanding, like for the shares U.S.
healthcare firm Signal Advance mistaken for the unlisted texting
app.
Today's surge was for the Dogecoin crypto which jumped 50%
after the billionaire entrepreneur tweeted his support just two
days after promising to take a break from the social media.
Quite tellingly, when Musk a few minutes later wrote
"Sandstorm is a master piece", some Twitter users wondered if we
was referring to a stock or a popular tune.
But beyond today's fad, Musk's ability to move markets seems
to capture the financial zeitgeist of early 2021.
"It plays into the whole narrative we have tracked these
last two weeks as social media is used by various characters to
ramp individual assets", commented Neil Wilson at Markets.com.
"Anything Musk tweets about shoots higher because he has
such a strong following both on social media and as a
businessman. People will literally invest in him and his ideas
and don’t care what the fundamentals are about what's involved",
Wilson added.
Some reading on this:
Elon Musk, back on Twitter, turns his support to Dogecoin
urn:newsml:reuters.com:*:nL1N2KA0MQ
Papa Musk' tweets raise cheer in wrong Clubhouse
[nL8N2K84CD)
Elon Musk's Cyberpunk approval helps boost video games maker
CD Projekt further urn:newsml:reuters.com:*:nL1N2K400L
GameStop extends Reddit driven hyper-rally after Musk tweet
urn:newsml:reuters.com:*:nL4N2K12Y4
Bitcoin to online petwear: "Papa Musk" urn:newsml:reuters.com:*:nL8N2K432P
(Julien Ponthus and Sujata Rao)
*****
GERMAN BOND REPRICING (1034 GMT)
Two questions have been keeping government bond markets on
edge since the delays in vaccine rollouts: can we still expect a
strong economic rebound this year and, if this happens, will the
ECB allow yields to rise?
Goldman Sachs continues to forecast a strong cyclical
recovery coupled with a rise in long-end euro zone yields.
The recent delays “should only delay rather than derail the
eventual vaccine rollout in Europe,” it says in a research note.
A more substantial risk comes from new strains of COVID
however recent news on vaccine efficacy suggests that “our base
case for strong cyclical improvement in mid-2021 is intact.”
ECB wouldn’t be a problem as it will interpret yields rising
as being consistent with favourable financing conditions when
cyclical conditions improve.
German 30-year yields DE30YT=RR were conspicuously low
relative to the type of cyclical improvement we are still likely
to see and they have around 30 bps of room to reprice higher.
The investment bank forecast 10-year DE10YT=RR bund yields
at -0.30% at end-2021.
In the chart below Germany’s 30-year bond yield briefly
above zero level today for the first time since September.
(Stefano Rebaudo)
*****
DAS AUTO (0844 GMT)
European shares are up just slightly but nevertheless
managing to extend their winning streak to four days, shrugging
off weakness seen in Asia overnight.
Risk sentiment remains supported as investors look past the
Reddit fuelled gyrations and focus instead on the upcoming
economic recovery, giving reflation trades new impetus.
No surprise then to see auto sector, which will be key in
driving Europe Inc out of its profit recession, taking the lead
and helping lift the STOXX 600 .STOXX up 0.4% in early deals.
Autos .SXAP are among the best performers in Europe year
to date and their index has its highest since September 2018.
Their gains have brought the auto-heavy German index DAX
.GDAXI at striking distance from the record high set last
month, up 0.6% on the day and at the key 14,000 mark.
The DAX was up even as initial gains in Deutsche Bank
DBKGn.DE fizzled out. The lender eked out a small annual
profit, its first since 2014, as its investment banking business
boomed. ID:nL8N2KA182
Oil stocks .SXEP , another reflation trade, are also doing
strongly, as crude prices rise. Shell RDSa.L rose after its
results.
(Danilo Masoni)
*****
BACK IN THE COMFORT ZONE (0801 GMT)
With the Reddit tumult under control, markets have returned
to their comfort zone. World shares are a tad lower but within
striking distance of last month's record peak and on track for
their strongest week in three months.
Positive soundings from the earning season, Italy tapping
former ECB chief Draghi to solve its political crisis, hopes for
big-time U.S. stimulus and bullish comments by Fed policymakers
on economic growth are all lending a new impetus to reflation
trades.
Ten-year U.S. Treasury yields set a new three-week high at
1.151% and Brent crude is at an 11-month peak. In Europe,
despite a double-dip recession, German 10-year yields are
approaching six-month high.
In a sign of confidence, Shell boosted its dividend even as
Q4 profits dropped to the lowest in over two decades, boosting
shares almost 1% pre-market. Deutsche Bank meanwhile posted its
first annual net profit since 2014, sending shares nearly 4%
higher before the bell.
On the radar is also the Bank of England. No policy changes
are expected but it will likely set its sight on the prospects
of an vaccine-driven economic recovery and release the findings
of a consultation on what negative rates would mean for banks.
One dampener: speculation China may want to tighten its
policy drove short-term rates higher. Also watch the dollar --
at its strongest in more than two months on signs U.S. economic
recovery is outpacing the rest of the developed world.
Key developments that should provide more direction to
markets on Thursday:
Unilever reported underlying sales growth for the fourth
quarter that was in line with estimates
Roche got a fourth-quarter lift from its COVID-19 test
business
Nokia reported better-than-expected fourth-quarter revenue
and underlying profits, buoyed by a strategy revamp
Frankfurt-listed shares in retail trader darlings GameStop
and AMC fell in early trade
Bank of England meeting
Egypt central bank meets
Japan auctions 30-yr bonds
U.S. corporate events: Cigna, Bristol Myers-Squib, Merck,
New York Times, Ford, Motorola
(Danilo Masoni)
*****
MORNING CALL: TAKING A BREATHER (0638 GMT)
European shares look set to open little changed this
morning, as investors take a break following three straight
session of gains, driven by the GameStop trade unwinding, U.S.
stimulus and (last but not least) former ECB chief Draghi taking
on the task of bringing Italy out of its political crisis.
Futures on the DAX and FTSE 100 indexes were trading flat
and up 0.2% respectively at the time of writing.
Over in Asia, shares dipped as tight liquidity conditions in
China curbed buying for now, though improving corporate
earnings, expectations of large U.S. stimulus and subsiding
retail frenzy all supported risk sentiment. ID:nL1N2KA070
Back to Europe where the earnings season in underway,
Deutsche Bank DBKGn.DE is on the watch-list after the bank
swung to a small annual profit in 2020, its first since 2014, on
the back of strong gains at its investment banking division.
ID:nL8N2KA182
(Danilo Masoni)
*****
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GameStop https://tmsnrt.rs/2MpRpsU
DAX https://tmsnrt.rs/3rhoANZ
bund https://tmsnrt.rs/3jgzxMN
Musk https://tmsnrt.rs/2LllOrG
china https://tmsnrt.rs/3oMSEiW
BoE https://tmsnrt.rs/2YGUMOz
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