Strong results lift Europe’s STOXX 600; ECB hikes rates 50 bps

By Susan Mathew and Devik Jain

(Reuters) – Europe’s STOXX 600 share index rose on Thursday, boosted by a run of upbeat corporate results although gains were limited as investors digested an oversized ECB interest-rate hike amid growing worries about a recession.

In its first rate hike in 11 years, the European Central Bank lifted interest rates to zero percent, breaking its own guidance for a 25 basis point increase to tame inflation running at a record high of 8.6%.

However, the central bank did not provide guidance for its expected rate hike in September, saying only that further increases will be as appropriate and decisions will be made meeting by meeting.

“Today’s decision shows that the ECB is more concerned about (their) credibility than about being predictable. This matters more than forward guidance,” said Carsten Brzeski, global head of macro at ING.

“We expect the ECB to deliver another rate increase by a total of 50 bps before winter starts. Thereafter, we currently don’t expect further rate hikes. Instead of a long rate hike journey, the ECB’s policy normalisation currently rather looks like a short trip.”

The broader-pan European STOXX 600 index closed 0.4% higher after seesawing earlier in the session in the aftermath of the ECB’s decision and President Christine Lagarde’s presser.

In a bid to cushion the impact of the rise in borrowing costs on the 19-country currency bloc’s more indebted nations, the ECB also unveiled a new tool, the Transmission Protection Instrument, to limit financial fragmentation.

Italian banks pared losses to end 2.9% lower. They had fallen up to 7.2% earlier in the day after Prime Minister Mario Draghi resigned, pushing the country into fresh political turmoil.

An early election in September or October will be the most likely outcome. Italy’s benchmark FTSE MIB index which had dropped almost 3% earlier in the day, closed 0.7% down.

Some relief on Thursday came from easing worries over an energy supply crunch, as Russian gas flows resumed through Nord Stream 1, the biggest pipeline between Russia and Germany.

Worries about an energy supply crunch in Europe, a weaker euro and prospects that aggressive monetary policy tightening to curb soaring inflation could spark a global recession have rattled markets, with the STOXX 600 down 13% this year.

Viaplay Group jumped 11.1% after the Swedish media group posted upbeat quarterly earnings and subscriber numbers.

ASM International surged 14% to top the STOXX 600 after the Dutch semiconductor supplier flagged new orders at a record high as it published results in line with its forecast, despite lingering supply-chain issues.

Publicis gained 5.1% after the world’s third-biggest advertising group raised its full-year outlook.

(Reporting by Susan Mathew and Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Arun Koyyur, Kirsten Donovan)

ECB Surprise Hike Has No Effect on the EUR

For the first time in over 10 years, the European Central Bank (ECB) has made the decision to deliver an interest rate hike in the wake of the deepening crisis with inflation, now at 8.6% across its 19 member countries. The move of 50 basis points was unexpected by both analysts and economists alike and was double the increase assured at the last monetary policy meeting in June, where rates at the time remained the same.

The interest rates on the marginal lending facility, the deposit facility, and the main refinancing operations were all increased by the same increment to 0.75%, 0.00%, and 0.50% respectively, putting an end to 8 years of negative rates, and will come into effect from the 27th of July.

In its statement, the Governing Council explained that it had been appropriate to take a more significant step in its path to policy rate normalization by frontloading the exit from negative interest rates, stating “the decision is based on the Governing Council’s updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy.”

More hikes are already being forecasted in the months to come, as the target of 2% inflation for the medium term is still the goal of the Council. These increases will be determined on a meeting-by-meeting basis, the next of which is scheduled for the 8th of September.

Leading up to the announcement the euro was continuing its fall against the USD, boosted by the possibility of the Fed increasing its main interest rate by 75 basis points (or more?) next week – not forgetting that the consequence of the potential energy crisis in Europe is adding bearish pressure to the EUR.

EUR/USD & EurBund Sep2022 – Source: ActivTrader Online Trading Platform

High inflation is the main issue – and not only in Europe

This is the latest in a spate of increases seen in nearly every corner of the globe over the last few months. Many countries are having to navigate the same record-breaking inflation numbers whilst walking the tightrope of keeping their economies from sliding into recession.

The Federal Reserve (Fed) last month increased rates by 75 basis points and is tipped by economists to raise rates again by the same amount in July. The Bank of England increased rates from 1% to 1.25% last month and is slated to increase them again by 50 basis points at the next meeting after inflation hit a forty-year high of 9.4%.

The situation facing the ECB’s president Christine Lagarde is particularly high stakes, having to ensure a balance between the 19 euro countries with the weaknesses and debt burdens that they each carry.

Evidence of this is the current political turmoil in Italy, with the resignation being confirmed today of its Prime Minister, Mario Draghi, after three of the main partners in his coalition snubbed him in a confidence vote that he had initiated to try to repair their splitting alliance.

It now appears as though the country’s President, Sergio Mattarella, will be looking to call early elections in the coming months. The announcement triggered Italian bonds and stocks to be sold off sharply as a result and increased the cost of Rome’s borrowing.

Debt financing stress prompts new monetary policy

With Italy’s situation partly in mind, the Council also announced the approval of its “anti-fragmentation” program called the Transmission Protection Instrument (TPI), which will be used to counter unwarranted, disorderly market dynamics that threaten the way monetary policy can be transmitted smoothly across the Eurozone, allowing the ECB to ensure the delivery of its price stability mandate.

In her statement, Lagarde pointed to the flexibility in reinvestments of redemptions coming due in the pandemic emergency purchase program (PEPP) portfolio as the first line of defense against the risks to the transmission mechanism related to the pandemic.

Continuing in her statement, she cited the ongoing conflict in Ukraine as a major drag on economic growth, continuing pent-up supply relative to demand, and the rising cost of energy and everyday products as having a dampening effect on the economy. The Governor further commented that inflation was likely to “remain undesirably high for some time, owing to continued pressures in the pricing chain.”

Adding to the stress for citizens is the tightening of credit standards for all loan categories according to most recent bank lending survey reports. “Banks are expected to continue tightening their credit standards in the third quarter.” Said Lagarde.

The Governor reassured that there were reasons for some positivity though, indicating that there are signs of bottlenecks in supply improving, the labor market is remaining strong, many in the population were able to build on their personal savings during the pandemic, and with economies re-opening there is some hope that the tourism industry may start to rebuild and improve economic numbers in the third quarter of the year by supporting spending in the services sector. Unemployment is also at a historical low of 6.6 percent (May figures).

In summing up, Governor Lagarde further mentioned that the council was ready to adjust all of its instruments within its mandate to ensure that inflation was going to stabilize at the target of two percent over the medium term. But will it be enough?

After the UK, Spain is Taxing Companies Making Extraordinary Profits. Who’s Next?

With many of the major economies around the globe struggling to keep inflation under control and the price of living skyrocketing, it was really only a matter of time before extraordinary measures were needed to ease the pain…

A little background

Back in WWI and WWII, the British, US, and Canadian governments – among others – imposed a tax on corporations that were making extraordinary profits on the back of those crisis conditions, in order to support the population and help with the ongoing recovery of their economies.

This tax, commonly known as “windfall tax” or “excess profits tax” tends to be temporary but can also become permanent, depending on the government’s specific policies. It’s generally levied on business income that is above a normal rate of profit. The ‘extra’ income is taxed at a separate rate in addition to the individual or corporate income tax that is already paid.

Understandably this is not a popular policy among many of those involved in the high-earning corporate world as it reduces some of the motivation derived from making a profit, but there are extreme circumstances where it makes sense and seems only fair to employ them.

Who’s using the measure right now?

Now in the wake of the pandemic, the conflict in Ukraine, supply chain issues, and China’s lockdowns, among other things, there are many companies that seem to have clearly taken advantage of increased prices, government support programs for businesses, and new booming demand as a result of government policies.

In the case of Spain’s recent decision to introduce such a tax, their Prime Minister, Pedro Sanchez of the Socialist Party, told parliament in a state of the nation speech on Tuesday 12th July that the new measures should generate around 7 billion euros in 2023 and 2024.

In justifying the decision, which came as a total surprise to some in the banking industry, Sanchez commented that inflation was the biggest challenge for Spain, comparing it to “a serious illness of our economy that impoverishes everyone, especially the most vulnerable groups.”

Shortly after the announcement, Sabadell (SABE) closed with a drop of 7.4%, Bankinter (BKT) fell 5%, and Caixabank (CABK) also recorded a fall of 8.6%. Most of them are falling today, as the IBEX35 gets deeper in the red today, as you can see on the above charts from the ActivTrader platform.

Spanish stocks

In opposition to the announcements relative to financial lenders, Reuters reports that the Spanish banking association’s spokesperson, Jose Luis Martinez, commented that the “European Central Bank’s possible rise in interest rates did not necessarily ensure an improvement in bank’s profitability, nor did it translate into extraordinary profits, but rather responded to the rise in inflation and may lead to less economic activity.” Possibly pointing to the idea that the banks were perhaps not the most worthy targets for increased taxation.

Specific companies targeted in Spain, although the finer details are still unknown, will be those with turnovers of over 1 billion euros. This would include energy firms that are benefiting from rising prices and financial institutions since interest rates were on the way up.

Prime Minister Sanchez further commented that the profits from rising prices “must be returned to citizens” rather than “fattening” the “salaries of big business leaders,” he said.

The Spanish government isn’t the first to resort to a temporary excess profits tax policy this year. Back in May, despite Boris Johnson’s objections that it would be a bad move for investment, the UK imposed a 25% energy windfall tax on oil and gas producers for the same purpose of helping the population deal with surging household bills. This was hoped to be phased out when the price of commodities returned to normal levels, whenever that may be.

Similarly in Italy, the government declared that its energy companies would have to pay a once-off 25% levy due in November to combat rising prices. As did Hungary with a comparable policy around the same time, with their Economic Development Minister, Marton Nagy, saying in a statement that the new set of windfall taxes imposed on banks and a range of other companies like insurers, energy firms, and airlines (among others) would be temporary and targeted measures.

India also imposed a tax of 23,250 rupees per tonne on their domestic production of crude. The government commented that the new levy was introduced “by way of special additional excise duty” and tracks the rapid increase in international crude prices.

Who might be next?

While it hasn’t been legislated yet, there have been recent talks of introducing a tax on the excess profits of oil and gas companies in the US. Senate Finance Committee Chair, Ron Wyden, called for the 21% tax to be implemented for companies with over $1 billion in yearly revenue in a statement on the 14th of June.

Senate Budget Committee Chairman, Bernie Sanders also promoted the idea of a 95% tax on windfall profits of those companies earning more than $500 million in annual revenue at a hearing back in April. Stating: “We’re seeing record-breaking levels of stock buybacks. We’re seeing high dividends. We are seeing and living through a moment in American history where the people on top are doing phenomenally well while working people are struggling.” Sanders pointed to specific companies such as Exxon Mobil and Tyson Foods as reporting much higher profits during the last couple of years of the pandemic.

Supporters say the current increased revenues for these companies are a direct result of the conflict in Ukraine and the fallout from the pandemic, and not from better business strategies or new investments, but some economists argue that a windfall tax will just have the opposite effect of what lawmakers hope, leading to higher prices again and more reliance on foreign imports while doing nothing to stimulate local production.

Canada’s International Institute for Sustainable Development published an article on the 11th of July, suggesting the windfall tax as a viable alternative to their current measures for reducing stress on households, and those in the country’s provincial green parties have been calling for the idea to be revisited ahead of their next ministers’ meeting due to be held in the coming days.

U.S. ban on Russian oil spooks jumpy European stocks

By Sruthi Shankar, Bansari Mayur Kamdar and Susan Mathew

(Reuters) -European shares slipped on Tuesday, as the United States banned Russian oil imports, raising volatility and fears of global stagflation, and offsetting a recovery in financial stocks.

The region-wide STOXX 600 index ended a choppy session down 0.5% with technology, healthcare and the materials sector weighing.

London’s FTSE and the German DAX were flat, while the bank-heavy indices of Spain and Italy outperformed, rising 1.8% and 0.8%, respectively.

President Joe Biden announced a U.S. ban on Russian oil and other energy imports, ramping up a campaign against Moscow in retaliation for its invasion of Ukraine, while Britain said it would phase out imports of Russian oil and oil products by the end of 2022.

The European Union has so far refrained from a ban on imports given its dependence on Russian gas and oil and the possible inflation repurcussions.

While markets had priced in the bans to an extent, the crisis is fuelling worries about slower economic growth coupled with higher commodity prices and inflation, Julien Lafargue, chief market strategist at Barclays Private Bank, said.

Fears of a severe supply crunch sent crude prices soaring past $132 per barrel, boosting London-listed oil majors BP and Shell up 5.1% and 3.0% respectively. [O/R]

Germany’s DAX and Italy’s MIB were confirmed as being in a bear market, or a decline of 20% or more from the most recent closing highs, on the prospect of a Russian oil import ban.

The STOXX 600 is down almost 15% so far this year, slipping from January’s record highs as the Ukraine crisis has escalated.

“If there is a further escalation in terms of sanctions and you have an actual stopping in physical supply of gas to Europe, you can even be faced with rolling blackouts in the industrial sector,” said Davide Oneglia, senior economist at TS Lombard.

Euro zone banks closed 2.5% higher after hitting a one-year low in the previous session.

Most euro zone sovereign bond yields soared and a key gauge of market inflation expectations jumped to its highest level since late 2013 amid unease over rising price pressures two days before a European Central Bank meeting.

Telecom Italia gained 5.9% after an Italian newspaper reported that U.S. fund KKR was still interested in a takeover, albeit at a lower price.

British insurer and asset manager M&G jumped 15.0% after announcing a 500 million pound ($654.3 million) share buyback programme.

(Reporting by Sruthi Shankar, Susan Mathew and Bansari Mayur Kamdar in Bengaluru; editing by Uttaresh.V, Anil D’Silva and Alexander Smith)

European shares skid to near 1-year low on Russia oil ban prospects

By Sruthi Shankar, Susan Mathew and Bansari Mayur Kamdar

(Reuters) – European stocks ended off session lows on Monday, helped by a 4.3% rally in energy stocks as oil prices rose above $130 a barrel, but inflation fears amid the Russia-Ukraine conflict saw German and Italian shares confirm a bear market.

London’s commodity-heavy FTSE 100 lost the least, down 0.4% with oil majors BP Plc and Shell jumping 3.8% and 8%, respectively, as the U.S. and Western allies weigh a ban on importing Russian oil over its invasion of Ukraine which Moscow calls a “special operation”. [O/R]

Europe’s largest economy, Germany, is not currently planning to stop importing Russian oil, gas and coal but is keeping the option open, Finance Minister Christian Lindner said on Monday.

“Germany is one of those European economies who is going to get a severe hit if the allies and the U.S. impose sanctions on Russian oil,” said Ipek Ozkardeskaya, senior analyst at Swissquote.

“We are already at skyrocketing inflation… We could see a situation where we have a high inflation and high unemployment and a weakened global growth. A stagflation is, unfortunately, a very highly likely scenario.”

The pan-European STOXX 600 index cut losses of around 3% to close at a near one-year low, down 1.1%. Banking and auto stocks led declines.

The German DAX and Italy’s MIB have shed more than 20% from their record closing highs on Jan. 5, confirming bear market levels. The indexes were down 2.0% and 1.4% respectively for the day.

“We were expecting European stocks to outperform their U.S. peers (this year). But, right now, with the war at Germany’s doorstep, it’s not going to be the case anymore.”

The euro-zone bank index tumbled 4.1% to a 13-month low ahead of a European Central Bank meeting later this week, with mixed views about how the central bank will respond to the potential economic impact of the Ukraine conflict.

Shares in UniCredit, Raiffeisen and Societe Generale, among banks exposed to Russia, all fell between 4.2% and 5.7%.

Russia supplies accounted for 17% of global natural gas consumption, 40% of Western European consumption as of 2021, according to a Goldman Sachs note.

Italian steel pipe maker Tenaris surged 13.0%. With Russian steel exports expected to lose access to the European market, Jefferies sees a market opportunity for established producers like Tenaris and France’s Vallourec of about $200 million.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Vinay Dwivedi and Lisa Shumaker)

Apple retreats again, after valuation tops $3 trillion again

By Medha Singh and Noel Randewich

(Reuters) – Apple Inc’s stock market value peaked on Tuesday for a second day above a $3 trillion, but the iPhone maker’s shares again failed hold that gain by the session’s end.

Apple shares ended down 1.3% at $179.70, leaving its market capitalization at $2.95 trillion.

On Monday, Apple’s stock market value rose briefly above $3 trillion for the first time ever, and it repeated that again on Tuesday before losing ground. The world’s most valuable company has yet to end a session at that level.

Apple accounts for nearly 7% of S&P 500 index’s value, according to Refinitiv data, the highest for a single stock in the index at a time when the benchmark is perched at a peak.

Surging demand for iPhones, MacBooks and iPads during the pandemic helped push the Cupertino, California company’s market capitalization past $2 trillion in August 2020.

“Apple has been one of the key pandemic trades for a lot of people and as we exit the pandemic. … the iPhone maker is going to struggle a little bit,” warned Edward Moya, senior market analyst at Oanda in New York.

Apple’s massive share repurchases in recent years have also fueled its stock rally.

The company has bought back $348 billion worth of shares in the five years through the September quarter of 2021, reducing its share count by 23% over that period, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

“You know there’s going to be buying,” Silverblatt said. “From an investor point of view, it’s very important.”

With Tesla now the world’s most valuable automaker as Wall Street bets heavily on electric cars, many investors expect Apple to launch its own vehicle within the next few years as it looks to reduce its current reliance on iPhones for about half of its revenue.

Notably, Apple is worth more than any of Europe’s main regional indexes including Britain’s FTSE 100, France’s CAC 40, Germany’s DAX, Spain’s IBEX 35 and Italy’s FTSE MIB.

Apple’s stock is now up 1% in 2022 after gaining 34% last year. It is trading at about 31 times expected 12-month earnings, which is expensive compared to its five-year average of 20 times expected earnings, according to Refinitiv data.

(Reporting by Medha Singh and Bansari Mayur Kamdar in Bengaluru, additional reporting by Julien Ponthus in London, Caroline Valetkevitch in New York and Noel Randewich in Oakland, California; Editing by Sriraj Kalluvila)

Telecom Italia shares fall after tense board meeting

ROME (Reuters) – Shares in Telecom Italia (TIM) slid almost 5% in early trade on the Milan bourse on Friday after a tense board meeting called by top investor Vivendi and which Chief Executive Luigi Gubitosi survived.

In a statement at the end of the board meeting on Thursday evening, TIM said it had discussed the difficult market situation and the challenges the group is facing, agreeing steps to prepare a new strategic plan due in February.

It added that no negotiations were ongoing over its network or other strategic assets.

“There is disappointment from the market over yesterday’s statement saying there are no negotiations over the network or other assets, hence undermining speculation,” a Milan-based trader told Reuters.

France’s Vivendi has challenged Gubitosi’s leadership role at the former phone monopoly, following two profit warnings in three months.

People with knowledge of the matter said that the discussion at the six-hour meeting were strained and that Vivendi would continue to pressure the CEO to address the debt laden group’s issues.

Banca Akros said in a report on Thursday that the extraordinary board “produced no relevant outcome” despite market rumours suggesting that new developments would be announced in terms of network ownership, cost-cutting, maximising the value of assets and potential management changes.

Telecom Italia shares were down 4.56% at 0.32 euros at 0815 GMT, underperforming both a flat FTSE MIB blue-chip index and a flat European telecoms index.

(Reporting by Giulia Segreti in Rome, additional reporting by Giancarlo Navach in Milan, editing by Gianluca Semeraro and Keith Weir)

European Shares Bounce After Worst Session in Two Months; UMG Soars in Debut

The pan-European STOXX 600 was up 0.9% by 07:43 GMT after sinking to a two-month low in the previous session.

Media, mining and energy stocks led early gains, while Germany’s DAX rebounded from its lowest level since late-July.

U.S. stock futures also bounced a day after global markets were roiled by concerns the potential default by Evergrande, the world’s biggest property developer, could hurt China’s real estate sector, banks and the global economy.

Evergrande, struggling for cash, owes $305 billion.

Focus this week is also on policy meetings at a slate of central banks, including the U.S. Federal Reserve, with investors expecting some of them to indicate they were ready to ease their pandemic-era stimulus to combat high inflation.

“Concerns about Evergrande remain but for now there appears to be a wait-and-see approach being adopted,” said Michael Hewson, chief market analyst at CMC Markets UK.

“The bigger question given the risks from events in China is whether the Fed adopts a less hawkish stance tomorrow in order to buy itself some time until the situation becomes clearer.”

Europe’s benchmark STOXX 600 has fallen from record highs in September after seven straight months of gains on fears of persistently high COVID-19 cases and signs of a slowdown in the global economic recovery.

However, helping sentiment on Tuesday, travel-related stocks including British Airways-owner IAG, cruiseliner Carnival Corp and InterContinental Hotels Group jumped between 2% and 5% following the relaxation of U.S. travel curbs.

Britain’s National Express rose 4% after rival Stagecoach Group said it was in talks with National Express about a possible all-share merger.

Stagecoach’s shares jumped 17.3%.

Universal Music Group, the business behind singers such as Lady Gaga, Taylor Swift and The Weeknd, surged 38% in its first day of trading, giving it a market capitalisation of more than 46 billion euros ($54 billion).

Shares of owner Vivendi sank 16.7%.

Sweden’s gardening power tools group Husqvarna tumbled 5.4% after warning it could potentially lose top line sales of up to around 2 billion crowns ($230.7 million) due to a supplier dispute.

All major European bourses were up in morning trading, with the UK’s FTSE 100, Spain’s IBEX and Italy’s FTSE MIB gaining between 0.7% and 0.9%.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Arun Koyyur)

European Shares Seen Holding Tight to Record Levels: Reuters Poll

The Reuters poll of 18 fund managers, strategists and brokers surveyed over the past week predicted the STOXX 600 would reach 470 points by year end, just 0.4% below Monday’s close.

A much stronger-than-expected second-quarter earnings season and improving economic data in Europe pushed the benchmark STOXX 600 to its longest winning daily streak in almost 15 years in August.

With most of the results accounted for, European profits are expected to have surged a whopping 151% in the second quarter, according to the latest Refinitiv I/B/E/S data.

And European corporates are set for more quarters of double-digit profit growth, with the European Union pumping more support through its huge post-pandemic recovery fund and vaccines mitigating worries around the COVID-19 Delta variant.

Refinitiv data points to profit growth of 43% and 35% in the third and fourth quarter, respectively.

Data has already shown that euro zone business activity grew strongly again in August, only dipping from July’s two-decade high monthly pace, with the IHS Markit flash Composite Purchasing Managers’ Index, a gauge of economic health, at 59.5, well above the 50 mark separating growth from contraction.

European stocks are up 18% this year and have outperformed the MSCI’s global stock index, which is up 13% year to date.

But remaining anchored to record levels won’t come without challenges, as investors ponder risks that inflation could lead to a tightening of monetary policy conditions, especially in the United States, while China’s months-long regulatory crackdown on an array of private companies keeps investors on their toes.

Equities will “continue climbing a wall of worry,” said Emmanuel Cau, head of European equity strategy at Barclays, with the regulatory crackdown in China being “another challenge for investor confidence”.

Some $120 billion of market capitalization was wiped off the European luxury space, which shed 14% in two days in August, after Chinese President Xi Jinping delivered a blow to the sector, with plans for wealth redistribution.

ALL EYES WILL BE ON GERMANY

Investors are also taking into account the prospect of political gridlock in Germany in the wake of the upcoming elections, the first without Angela Merkel in more than 15 years.

“All eyes will be on Germany’s federal elections in September 2021”, said Roland Kaloyan, head of European equity strategy at SocGen.

Barclays is not planning to turn more defensive just yet after it moderated its cyclical exposure, as European shares still offer attractive relative value, Cau said.

European indexes are cheaper than global peers as they are heavy in banks and other cyclical stocks which benefit when the economy looks up, and are light on tech and growth stocks for which investors are reluctant to pay hefty premiums amid buoyant economic activity and rising interest rates.

According to the poll, Germany’s industrials-heavy DAX index should gain about 1.2% to 16,050 points at the end of the year against Monday’s close of 15,852.8 points.

London’s blue chip index is expected to rise 1.3% to 7,200 points. France’s CAC 40 index is seen rising 1.7% to 6,800 points.

While Italy’s FTSE MIB and Spain’s IBEX are seen making the biggest gains, jumping 2.9% to 26,810 points and 2.1% to 9,160 points, respectively, before the end of the year.

For a look at all of today’s economic events, check out our economic calendar.

(Other stories from the Reuters Q3 global stock markets poll package:)

(Reporting by Joice Alves; additional polling by Sujith Pai and Indradip Ghosh; Editing by Chizu Nomiyama)

Stocks clamber up from 4-week lows, dollar eases from 10-week high

By Ritvik Carvalho

LONDON (Reuters) – Global stocks recovered some losses after hitting a four-week low on Monday as investors continued to digest last week’s surprise hawkish shift by the U.S. Federal Reserve, while the dollar stood just below a 10-week high.

Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have fallen sharply since the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023.

Stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.2% by afternoon trade in London. [.EU]

U.S. stock futures also moved firmly into positive territory, suggesting gains at the open on Wall Street later in the day. S&P 500 E-mini futures were up [.N]

“The interesting part about this correction is that it was lagged, so it took a while for the market to sort through the news,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“The situation in reality is actually pretty good – the Fed is stabilizing inflation…Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”

Britain’s FTSE 100 was down 0.1%, France’s CAC 40 index gained 0.3% and Spain’s IBEX 35 fell 0.3%. Germany’s DAX was up nearly half a percent, while Italy’s FTSE MIB index rose 0.2%.

MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.2%, trimming some losses after hitting its lowest since May 24.

Benchmark 10-year U.S. Treasury yields recovered to 1.4414% after falling to their lowest since Feb. 24 at 1.3540%.

The yield curve – measured by the spread between two- and 30-year yields – earlier hit its flattest since late January, and as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.

The U.S. dollar index hovered just below the 10-week high of 92.408 touched on Friday, following its biggest weekly advance in more than a year.

“Last week’s dollar rally is a combination of expectations and positioning (sold dollars), a concern that the Fed is ‘behind the curve’ (and therefore must do more and earlier than expected), and that stock markets have started to lose ground which makes the dollar strengthen as the most defensive currency,” Filip Carlsson, junior quantitative strategist at SEB, said in a morning note.

“We still see this as a correction and not the beginning of a new trend.”

St. Louis Fed President James Bullard further fuelled the sell-off on Friday by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.

“The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view,” Morgan Stanley analysts wrote in a report.

“It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year.”

Earlier in Asia, Japan’s Nikkei led declines with a 3.6% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. Chinese blue chips lost 0.7%.

Several Fed officials have speaking duties this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. European Central Bank President Christine Lagarde speaks before the European Parliament on Monday.

The euro traded above its lowest against the dollar since April 6 at $1.1896 on Monday, dropping from as high as $1.21457 last Tuesday.

Sterling recovered some ground, to trade 0.6% higher at $1.3880 after sliding to its lowest since April 16 on Friday. [GBP/]

Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495.

A stronger greenback has pressured cryptocurrencies too, with bitcoin falling 10% to around $31,930, while smaller rival ether lost 15% to around $1,903.

In commodities, gold rebounded 1.1% to $1,783 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May.

Three-month copper on the London Metal Exchange fell to its lowest since April 15, following an 8.6% drop last week, the biggest weekly fall since March 2020.

Crude oil rose for a second day, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.

Brent crude futures rose 0.1% to $73.56 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.1% to $71.74 a barrel.

(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Catherine Evans and Peter Graff)

UK’s FirstGroup Clashes with Top Investor Over Divestment

By Yadarisa Shabong

Coast Capital, which holds nearly 14% of the transport operator, late on Monday urged fellow shareholders to vote against the proposed disposal of the “crown jewel assets”, unless the terms of the proposal were “rapidly and substantively improved”.

FirstGroup said the sale “followed a comprehensive and competitive process in order to seek the best possible price for First Student and First Transit, which was well publicised for more than a year”.

Analysts at RBC Capital Markets believe the sale price is above its valuation of FirstGroup’s North American assets.

Activist investor Coast Capital, however, criticised the portion of proceeds that shareholders stand to receive from the deal.

FirstGroup last month agreed the sale of the assets and said it planned to use the proceeds to pay down debt, contribute to its UK pension schemes and return money to shareholders.

It said on Tuesday it will consider making additional distributions to continuing shareholders on top of the 365 million pounds ($518 million) it earmarked last month.

Shares of the FTSE 250 company, which will hold a general meeting on May 27 to vote on the proposed divestment, were up 3.2% by 1236 GMT.

FirstGroup, which had net debt of nearly 3 billion pounds at the end of September, said it was committed to keeping the balance sheet position of the retained group under review.

FirstGroup will focus on its First Bus and four train contracts in Britain after the deal as well as on finding a buyer for its Greyhound intercity coach service.

Coast Capital in 2019 pushed for a review of the company’s U.S. assets and sought a demerger of the group’s North American businesses in 2020.

($1 = 0.7040 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; editing by Amy Caren Daniel and Jason Neely)

Reopening Optimism Pushes European Stocks Closer to Record High

The pan-European STOXX 600 index rose 0.7% by 0716 GMT, trading just shy of its record high hit last week, with economy-linked cyclical sectors like miners and automakers leading the gains.

The German DAX rose 0.8% to hit a record high, while Italy’s FTSE MIB added 0.8% to fresh pre-pandemic highs.

Milan-listed shares of Stellantis gained 1.3% ahead of the announcement of ties with Foxconn.

The world’s biggest maker of hearing aids Sonova Holding surged 8.5% after predicting strong growth this year due to a market recovery and new products.

Meanwhile, Vodafone fell 7.2% after the UK mobile operator reported a 1.2% drop in full-year adjusted earnings as COVID-19 hit roaming revenue and handset sales.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)

British Midcaps Hit Record High; Equiniti Group Shines

By Devik Jain

The British outsourcer jumped 13.8% after U.S. private equity firm Siris Capital tabled a 624.3 million pounds ($864.59 million) bid in an all-cash deal.

The blue-chip index edged 0.1% higher in choppy trading, with gains being capped by a 0.8% decline in heavyweight energy shares as they tracked lower oil prices. [O/R]

AstraZeneca rose 0.4%, and was among the biggest boost to the FTSE 100 after the Philippines said it will resume administering drugmaker’s COVID-19 vaccine to people below 60 years of age.

The domestically focussed mid-cap FTSE 250 index also gained 0.4% to touch a record high.

“Markets are back to being a bit dull for now but pretty buoyant,” Deutsche Bank strategist Jim Reid wrote in a note.

“It’s a lighter week ahead, with the main highlight likely to be at the end of the week with the flash PMIs for April … And there’ll be particular attention on the price gauges as well as investors stay attuned to any signs of growing inflationary pressures.”

With the FTSE 100 gaining 8.7% year-to-date and UK vaccine rollout continuing to progress, markets will have a chance to gauge the impact on the economy as employment data, retail sales, CPI, PPI, and flash April PMIs are all due this week.

Meanwhile, homebuilders added 0.6% after property website Rightmove said advertised prices for homes in Britain hit a record high after finance minister Rishi Sunak stoked the market again by extending a tax-cut for home-buyers last month.

Johnson Matthey rose 0.9% after the chemicals company signed a long-term agreement with Russian metals producer Nornickel for the supply of nickel and cobalt to produce materials used to make electric vehicle (EV) batteries.

(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V)

Stocks Keep Spirits up Before Fed Meets

By Ritvik Carvalho

European shares extended a rally that began on Wall Street on Monday and continued into Asia, with the pan-region STOXX 600 index up 0.5%. On Monday, the index touched its highest level in more than a year before ending flat.

Britain’s FTSE 100 index rose 0.7%, Germany’s DAX 0.6%, France’s CAC 40 0.2% and Italy’s FTSE MIB index 0.6%.

E-mini futures for the S&P 500 hit a record high before trading flat on the day.

MSCI’s All Country World Index, which tracks stocks across 49 countries, rose 0.2% to its highest levels since Feb 25.

An index of Asia-Pacific share markets excluding Japan gained 0.65%, led by a 0.8% jump in Australia’s benchmark S&P/ASX 200 index.

Japan’s Nikkei 225 gained 0.5% to just below the 30,000 mark. The broader Topix added 0.65%.

China’s blue-chip CSI 300 index climbed 0.87% and Hong Kong’s Hang Seng gained 0.67%.

“The stock markets have kept their spirits up ahead of tomorrow’s important Fed announcement,” said Karl Steiner, chief quantitative strategist at SEB.

On Monday, the S&P 500 and Dow Jones Industrial Average both soared on gains in travel stocks as mass vaccinations in the United States and congressional approval of a $1.9 trillion aid bill fueled investor optimism.

Longer-term U.S. Treasury yields slipped further on Tuesday, as the market looked ahead to government debt auctions and the Fed’s two-day policy meeting, which will conclude on Wednesday.

The benchmark 10-year yield, which reached a more than one-year high of 1.642% last week, was back at 1.6004%.

The earlier surge in yields stemmed from investors speculating that rising inflation expectations could prompt the Federal Open Market Committee to signal it will start raising rates sooner than expected.

“We think the FOMC will have a hard time expressing concern about asset markets with the S&P at an all-time high on 12 March, despite 10Y U.S. Treasury yields at post-February 2020 highs,” said analysts Steve Englander and John Davies at Standard Chartered.

“Focus has been on the FOMC ‘dot plot’ in recent days, but if the FOMC and Fed Chair (Jerome) Powell do not push back against current yield levels, investors are likely to take yields higher as better data arrives.”

Fed policymakers are expected to forecast that the U.S. economy will grow in 2021 by the fastest rate in decades, as it recovers from a coronavirus-stricken 2020.

The Bank of England also meets this week on Thursday and the Bank of Japan wraps up a two-day meeting on Friday.

On Wall Street, the Dow Jones Industrial Average rose 174.82 points, or 0.53%, to 32,953.46, the S&P 500 gained 25.6 points, or 0.65%, to 3,968.94 and the Nasdaq Composite remained unchanged.

Airline shares rose as the companies pointed to concrete signs of an industry recovery as vaccine rollouts help spur leisure bookings.

The outlook for post-pandemic recoveries continued to diverge between the U.S. and Europe.

President Joe Biden’s order to make vaccination available to all adults by May 1 contrasted with stuttering rollouts in Germany, France and elsewhere, where use of the AstraZeneca vaccine has been suspended amid concern over possible side effects.

However, Kyle Rodda, an analyst at IG Markets, said the prospect of a slower economic recovery in Europe didn’t appear to be a major handicap for investors.

“It doesn’t seem to be the view that this is a real risk,” he said. “Investors are wary, but not worried.”

In currencies, the U.S. dollar held small gains from overnight, with caution evident ahead of the central bank meetings.

The dollar was largely flat at 109.19 yen, after rising as high as 109.365 on Monday for the first time since June.

The euro was little changed at $1.1930, holding for an eighth session below the $1.20 level.

Bitcoin halted its slide from a record high of $61,781.83 reached on Saturday, last trading 1% higher on the day around $56,250.

U.S. West Texas Intermediate crude for April changed hands at $64.74 a barrel, down 1%. Brent crude futures for May stood at $68.22 a barrel, losing 1%.

(This story corrects U.S. 10-year Treasury yield to 1.6004%)

(Reporting by Ritvik Carvalho; additional reporting by Kevin Buckland and Kane Wu in Tokyo; editing by Larry King)

USD/JPY Fundamental Weekly Forecast – Traders to Weigh June US Non-Farm Payrolls Against New COVID-19 Cases

The Dollar/Yen closed higher last week as weaker global equity markets drove investors into the safety of the U.S. Dollar. The catalysts behind the weakness in demand for higher risk assets were rising COVID-19 cases which threatened to derail the global economic recovery.

Technically, enough buyers came in last week at 106.074 to trigger a potentially bullish weekly closing price reversal bottom. If confirmed, this could lead to the start of a 2 to 3 week counter-trend rally. However, if the selling resumes and the main bottom at 105.987 is taken out then we could see the start of a steep sell-off.

Last week, the USD/JPY settled at 107.221, up 0.348 or +0.33%.

The price action last week was choppy and two-sided despite the higher close. The highlight of the week took place on June 23 when buyers and sellers produced a wickedly volatile outside move.

USD/JPY traders were spooked at the start of the trading session by comments from White House Trade Advisor Peter Navarro, who said that the trade deal between the United States and China is “over”. But he quickly backtracked his statement afterwards, claiming that his comments were taken out of context. U.S. President Donald Trump also said that the Phase One trade deal remains in place in a tweet.

Last week’s economic data was relatively tame, triggering little response from traders. The flash headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index fell to 37.8 in June from 38.4 in May instead of rising to 39.5 as analysts had predicted. The reading for the au Jibun Flash Japan Services Business Activity Index jumped to 42.3 from 26.5. The Bank of Japan reported that the core Consumer Price Index was unchanged in May. Market participants were expecting the same 0.1% decline as in April.

Bank of Japan Summary of Opinions

The BOJ’s summary of opinions from its latest policy-setting meeting suggests it may wait to see the effects of its recent measures to help companies affected by the coronavirus.

As the bank’s virus-response measures have been introduced almost in full, “it is desirable to carefully confirm and examine their effects for the time being,” one of the bank’s nine policy board members was quoted as saying in the summary of the June 15-16 meeting.

There was also an opinion calling for the bank to prioritize securing employment through supporting corporate financing, while maintaining cooperation between fiscal and monetary policies.

At the June meeting, the bank left key interest-rate targets unchanged. It said the total amount of its support for corporate financing would reach 110 trillion yen ($1.033 trillion) from an earlier total of Y75 trillion, in line with an expansion in government programs that the central bank is supporting.

Weekly Forecast

It’s a holiday shortened week in the U.S. so trading volume could be light, but that doesn’t mean we won’t see volatility. The main focus for traders will be risk sentiment. The catalyst that could trigger volatility in the equity and Forex markets will be the COVID-19 numbers. Another week of surging cases could drive up demand for the safe-haven U.S. Dollar.

There are plenty of economic reports to watch, but most eyes will be on the testimony of Federal Reserve Chairman Jerome Powell on Tuesday and Thursday’s U.S. Non-Farm Payrolls report.

As far as the jobs data is concerned, investors want to see if last month’s surprise gains in the headline number and the drop in the unemployment rate were real or a fluke.

For a look at all of today’s economic events, check out our economic calendar.

Dow Futures Plunge Nearly 900 Points Amid Concerns Over Resurgence of Coronavirus Infections

European stocks and the major U.S. stock indexes are poised to open lower Monday amid concerns over a resurgence of the coronavirus in Asia, particularly Beijing, and the U.S. as lockdowns are eased.

London’s FTSE is seen 34 points lower at 6,054, Germany’s DAX is expected to open 96 points lower at 11,835, France’s CAC 40 is seen 42 points lower at 4,783 and Italy’s FTSE MIB is seen 278 points lower at 18,675, according to IG.

Futures on the Dow Jones Industrial Average dropped 778 points, implying a drop of more than 850 points at the Monday open. S&P 500 and NASDAQ-100 futures also pointed to Monday opening declines for the two indexes.

States Reporting Rise in Daily New Coronavirus Cases

Reuters wrote that states in the reopening process including Alabama, California, Florida and North Carolina are reporting a rise in daily new coronavirus cases. Texas and North Carolina reported a record number of virus-related hospitalizations Saturday.

Meanwhile, Governor Andrew Cuomo warned New Yorkers against triggering a second wave of the coronavirus.

CDC Warns of Second Coronavirus Wave as States Lift Lockdowns

States may need to lock back down if coronavirus cases spike, the CDC is warning.

“If cases begin to go up again, particularly if they go up dramatically, it’s important to recognize that more mitigation efforts such as what were implemented back in March may be needed again,” Jay Butler, the agency’s deputy director for infectious diseases, told reporters Friday.

However, the second wave of lockdowns could be accomplished on a local, rather than state-wide level, Butler said.

“Right now, communities are experiencing different levels of transmission occurring as they gradually ease up onto the community mitigation efforts and gradually reopen,” he said.

Beijing District in ‘Wartime Emergency’ after Virus Spike Shuts Market

A district of Beijing was on a “wartime” footing and the capital banned tourism on Saturday after a cluster of novel coronavirus infections centered around a major wholesale market sparked fears of a new wave of COVID-19, Reuters reported.

Concern is growing of a second wave of the pandemic, which has infected more than 7.66 million people worldwide and killed more than 420,000, even in many countries that seemed to have curbed its spread.

Chu Junwei, an official of Beijing’s southwestern Fengtai district, told a briefing on Saturday that the district was in “wartime emergency mode”.

Shutting Down US Economy is Not an Option

Despite the spike in US COVID-19 cases and the warning from the CDC, Treasury Secretary Steven Mnuchin told CNBC that shutting down the economy for a second time to slow COVID-19 isn’t a viable option as it will “create more damage.”

“We can’t shut down the economy again. I think we’ve learned that if you shut down the economy, you’re going to create more damage,” Mnuchin said in an interview with CNBC’s Jim Cramer on “Squawk on the Street.”

“And not just economic damage, but there are other areas and we’ve talked about this:  medical problems and everything else that get put on hold,” he added. “I think it was very prudent what the president did, but I think we’ve learned a lot.”

For a look at all of today’s economic events, check out our economic calendar.

European Shares Higher Amid Speculation of Fresh ECB Stimulus Measures

European equity markets are expected to open higher Monday as global investors await central bank meetings later this week that could decide if further stimulus measures are necessary to reboot economies deeply damaged by the coronavirus pandemic.

Ahead of the session, investors in Europe are watching how the region gradually exits lockdown strategies that have crippled economies in Europe, however, the focus for investors will be whether central banks will announce additional stimulus measures later this week.

The U.S. Federal Reserve has a two-day meeting starting Tuesday and the European Central Bank (ECB) meets Thursday.

According to CNBC, London’s FTSE is expected to open 77 points higher at 5,827, Germany’s DAX is called 210 points higher at 10,555, France’s CAC 40 is seen 92 points higher at 4,484 and Italy’s FTSE MIB is expected to open 344 points higher at 17,095.

Asian Shares, US Futures Jump in Morning Trade

A rally in Asia may be helping to boost European shares ahead of the opening. On Monday, Asian stocks surged as the Bank of Japan (BOJ) announced more stimulus steps to help cushion the economic impact of the coronavirus. BOJ policymakers matched market speculation by pledging to buy unlimited amounts of government bonds, removing its previous target of 80 trillion yen per year. It also raised purchases of corporate and commercial debt, and eased rules for what debt would qualify.

Meanwhile, U.S. stock futures are trading higher in the early Monday morning trade as investors assessed the possibility of re-opening several key states in the United States.

New York Governor Andrew Cuomo said Sunday the state plans to re-open its economy in phases. The first phase, Cuomo said, would involve New York’s construction and manufacturing sectors. As part of the second phase, businesses will need to design plans for a re-opening that include social distancing practices and having personal protective equipment available.

Fed, ECB, Economic Reports and Earnings – Main Catalysts This Week

The Fed is widely expected to leave current QE and interest rate decisions unchanged. However, policymakers are expected to underline that its policies will be in place indefinitely to support the economy.

The ECB is expected to raise the size of its emergency bond buying package (PEPP) by around 500 billion Euros to 1.250 trillion and to continue pressing for a sizeable fiscal stimulus.

In economic news, the U.S. and European Union will release GDP estimates for the first quarter and the highly influential U.S. ISM survey on manufacturing.

Finally, 173 companies in the benchmark S&P 500 Index are scheduled to report this week, including Apple, Amazon, Facebook, Microsoft, Caterpillar, Ford, General Electric and Chevron.

Quadruple Witching Drives Stocks Higher, Equity Indices To Post The Second Day Of Gains, Viral Threat Continues To Spread

The U.S. Equities Move Higher

U.S. equity futures are higher in premarket trading after another volatile overnight session. Down more than 200 points at one time the Dow is now indicated to open higher by 3.20%. The NASDAQ leads early gains with an advance of 3.55% after hitting the limit-up 5% barrier earlier in the electronic session. The S&P 500 trails with a gain of 2.65% but is still moving higher for the second day. This makes the first two-day advance in many weeks and may signal a bottom has been reached.

Now that lawmakers are close to passing a sweeping spending bill to keep the U.S. economy afloat traders will be turning to the data. The first indications of economic impact came this week with the Empire State Index and jobless claims. The Empire State Index fell to -21.5%, its lowest recording ever, while jobless claims surged by 70,000. Next week, investors should be alert for another massive uptick in jobless claims that may top the 1 million mark.

Virus Threat Is About To Peak

California took bold steps to contain the spreading coronavirus. The governor ordered citizens to stay at home for two weeks effectively shutting the entire state down. Essential services will still function but business activity will come to a standstill. The number of cases is now over 253,000 globally with more than 10,000 dead. The U.S. has over 14,000 cases with 216 dead. Globally, more than 89,000 have fully recovered.

WTI is rebounding in early trading. The price for black gold is up more than 7.0% on Friday after posting its biggest one-day surge on Thursday. Thursday action has energy prices up nearly 20% at the high of the day. Although a good sign for the energy sector, prices remain low at $25.32 and are unlikely to stage a major rally until after the viral threat has passed. When the virus passes the demand for oil will spike and may cause WTI and Brent to move sharply higher.

Quadruple Witching To Drive Price Action

Today is quadruple witching, an event that may spark volatility in today’s trading. Quadruple witching is when equity options, single-stock futures, index options, and index futures expire on the same day. With the market having undergone a correction, and with high-volatility, there is likely to be a bit of unwinding for traders to do.

Stocks on the move include Tiffany, Nike, Tesla, and Walmart. Tiffany reported better than expected earnings on strong comps. LVMH, who recently agreed to buy Tiffany & Co, says it may choose to buy the stock on the open market. The stock is trading well below the agreed-upon price providing quite an opportunity for savings.

Nike got an upgrade from Bank of America. BoA analysts see the company gaining market share in the viral environment. Tesla says it will close two more plants in the fight to contain the virus. Musk says the company should have enough cash to weather the storm. Walmart, contrary to expectations for massive layoffs elsewhere in the economy, is planning to hire another 150,000 people to handle the viral-driven demand.

Volatility Rising, Labor Data Worsens Under Viral Impact, Analysts Fear Dark Times Ahead For Wall Street

Equity Markets Whipsaw In Overnight Action

The U.S. equity futures whipsawed in overnight action but did not trigger a limit-up or down event. The Dow Jones Industrial Average was down more than 3.0% in the earliest electronic trading, turned positive in the early AM hours, and then fell back to negative territory before the open of the session.  At last check, the major indices are all down about -2.5% but that could change at any time. Price action is driven in part by fear, in part by hope, and in part by forced liquidations in margin accounts. So far, the S&P 500 has shed a little more than 30% putting many levered accounts deep into the red.

Ray Dalio, head of Bridgewater Associates, estimates the loss to corporate America over $4 trillion. To combat the effect, the FOMC has lowered its interest rate to 0.0% and initiated a number of liquidity facilities aimed at propping up business. The latest move is a backstop for money market ETFs and comes in tandem with an emergency move from the ECB. The ECB has maintained its interest below 0.0% for many years so its tools are limited. What they’ve decided to do is begin the Pandemic Emergency Purchasing Program. The PEPP is worth nearly $820 billion in bond purchases.

Markets On The Move

Shares of automakers are moving lower in early trading following massive losses on Wednesday. GM is down more than -4.0% in early Thursday trading, it fell more than 17% on Wednesday. The reason is major automakers are shuttering their plants at the request of the UAW. The shut down is scheduled for two weeks but may extend if the virus threat lingers. BMW reported earnings this morning and show strength leading up to the pandemic. The company reported a 7.6% increase in YOY revenue that will not be matched this year. Shares of the stock are up slightly in early trading.

Restauranter Darden Restaurants Inc reported this morning and beat on the top and bottom line. The company says comps were strong across all brands and helped by traffic and pricing. Outlook for the coming year is dark, the board cut the dividend, full drew-down its credit facility as a precautionary measure, and pulled guidance.

The Labor Market Catches Cold

The initial claims data shows a surprisingly sharp uptick in first-time claims. The analyst’s consensus was only 220,000 despite knowledge of viral-induced shutdowns so the 281,000 reported should not have been a surprise. In my view, the increase is less than expected but surely foreshadows high numbers in the weeks to come. The dollar continues to move higher and is now trading at three-year high levels.

Scared Markets Crash Again, Volatility At Record High, Airlines Need Bailout Or Disaster Looms

Equity Futures Trigger Limit-Down Circuit-Breaker

The U.S. equity markets rebound from the lowest levels in over a year Tuesday but the gains did not hold. Efforts to prop up the economy were not enough to satisfy investors running scared from uncertainty. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all shed -5.0% in overnight electronic trading to trip the limit-down circuit-breaker once again. The trading in the S&P 500 ETF SPY is down about -6.0% and indicated a pause is likely at the open of today’s session.

Treasury Secretary Steven Mnuchin asked Congress for over $1 trillion aid on Tuesday. The money is intended to aid small businesses, individuals, and industries hurt worst by the viral-induced shutdown.  Part of the package will likely include checks mailed directly to U.S. citizens to help them navigate these troubled times. Mnuchin says that unemployment could hit 20% if Congress doesn’t act fast because many small businesses are already on the brink of collapse.

Virus Threat Still Spreading

The number of infected persons topped 200,000 on Wednesday. The good news is that China only reported 13 new cases showing that containment efforts can work. Italy is the hotbed of infection outside of Asia with over 2,500 infected. The U.S. has over 6,400 cases and 100+ dead from the illness.

Economists are estimated GDP growth could fall to only 3.0% for the Asia-Pacific region this year. The outlook includes a short, sharp contraction in the first and second quarters of the year followed by a rebound in the second half.

Energy prices are in freefall because of the viral threat and its impact on demand. WTI shed more than 6.25% in the early hours of the morning and is trading at a 20-year low. Energy companies around the world are scrambling to hoard cash and many of them will fail if prices don’t rebound soon.

Volatility At Record Highs, No Sign Of Recession In The Housing Data

The VIX retreat a bit in early morning trading but is still trading at the highest levels since 2008. At current levels, without some mind-bending good news, it will be weeks if not months before the market is fully calm again. Traders should expect the broad equities market to continue making large, wild swings in day to day trading action.

The economic data is still good and shows fundamental strength in the core U.S. economy. Housing Starts and Permits both fell from the previous month but there are mitigating factors. Both starts and permits for the previous month were revised higher to 13 or near-13 year highs. This month’s retreat leaves housing activities at the highest level since before the housing bubble burst. This activity will underpin the economy in 2020 and likely get a boost from the low-interest environment.