Inflation Questions Keep Stocks in Check

By Tom Wilson and Swati Pandey

The Euro STOXX 600 lost 0.2%, with German shares down 0.5% and London’s main index making slim losses. France gained 0.1%.

Losses of around 0.2% in energy stocks were offset by 1.2% gains in the mining sector, while British bank HSBC gained 0.1% after a move to exit U.S. retail banking to focus on Asia.

Wall Street futures gauges pointed to losses of around 0.2%.

In focus was U.S. gross domestic product and jobless claims numbers expected later in the day. Investors also held back major bets before the monthly U.S. personal consumption report, due on Friday.

“We still believe inflation will not be transient, but will persist – this is where I think we differ with central banks,” said Jeremy Gatto, a portfolio manager at Unigestion.

For many investors, rising inflation means the U.S. Federal Reserve will slowly but surely edge towards a discussion about tightening monetary policy.

The prospect lent support to the dollar, which has been heavily shorted of late.

The MSCI world equity index, which tracks shares in 49 countries, was flat.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan clawed back losses to trade flat at 695.37, not too far from Wednesday’s high of 696.76, a level last seen on May 10.

TAPER TALK?

Global equities markets have been supported by a concerted effort from major central banks, which have pumped trillions of dollars into financial markets since last year while reiterating their lower-for-longer interest rate stance.

U.S. Federal Reserve Vice Chair Richard Clarida said this week recent inflation pressures would “prove to be largely transitory”, though he did add that policymakers will be at a point to begin discussing tapering in upcoming meetings.

The Fed Vice Chair for supervision, Randal Quarles, suggested that at some stage it will become important for the U.S. central bank to discuss plans to tighten its asset purchase programme.

With tapering on the agenda, the U.S. dollar index held on to Wednesday’s gains and was steady at 89.992.

“Whether (central banks) are going to do something early in the very small way – just to indicate they are starting and do it very gradually – or do something bigger next year, they’re the two really big scenarios for most investors,” said Shaniel Ramjee, senior investment manager at Pictet Asset Management.

The Chinese yuan hit a three-year high as China’s central bank kept to the sidelines.

The euro edged up to $1.22030, after losing ground a day earlier after the European Central Bank’s Executive Board Director Fabio Panetta said it was too early to taper its emergency bond buying programme.

The New Zealand dollar was among the best performing currencies overnight after hints of a 2022 rate hike by the Reserve Bank of New Zealand. On Thursday, it retreated from a three-month top of $0.7317 and was last as $0.7294.

In commodities, gold prices hovered near $1,900 per ounce, after hitting its highest since Jan. 8 at $1,912.50. [GOL/]

(Reporting by Tom Wilson in London and Swati Pandey in Sydney; Editing by Lincoln Feast, Shri Navaratnam & Giles Elgood)

U.S. Investors Look to Europe for Next Leg of Stock Gains

By Lewis Krauskopf

European equity funds have notched their longest streak of net inflows in more than three years, according to data from EPFR, while fund managers globally surveyed by BofA Global Research said they are more overweight European stocks than at any time since March 2018. Morgan Stanley’s strategists, meanwhile, have named holding European stocks as one of their top trades.

The focus on Europe comes as the region’s benchmarks have kept pace with their U.S. counterparts after years of underperformance. The STOXX 600 is up 10.7% year-to-date, broadly matching the S&P 500. The S&P 500 was off 1.7% from its record high as of Thursday, while the European index has slipped 0.8% from its peak.

“We have been more exposed to the U.S. over the past years and now we are becoming more interested in foreign equities,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

Investors see an opportunity as Europe’s recovery begins to take root while the U.S. economic growth rate is expected to soon peak. European indexes are also more heavily weighted in the types of stocks expected to perform particularly well as the global economy bounces back, such as financials and industrials.

“Vaccinations are ticking up, you are likely to see restrictions come off and that should mean a decent economic recovery which will bleed into the markets in the euro zone,” Schutte said.

After contracting in the first quarter, the euro zone’s gross domestic product is expected to increase in the second quarter and post its fastest growth in the third, rising on an annualized basis by 9.2%, according to Oxford Economics. U.S. GDP, meanwhile, is expected to post its peak growth rate of 13.3% in the second quarter, after it expanded in the first quarter.

Meanwhile, nearly 48% of the U.S. population had received at least one vaccine dose as of Wednesday, compared with almost 28% of the European population, according to Our World in Data https://ourworldindata.org/covid-vaccinations.

“The story for the first few months of this year has been around U.S. exceptionalism,” said Mona Mahajan, senior U.S. investment strategist at Allianz Global Investors. “As we look through to the next three to six months, that may fade a bit especially if Europe continues to play catch-up.”

Many European stocks are also trading at relative discounts to their U.S. counterparts. The S&P 500 trades at nearly 21 times forward earnings compared with 16.7 times for the STOXX index, according to Refinitiv Datastream – a wider gap than on average over the past 10 years, although that difference has recently narrowed.

Part of the gap stems from the fact that U.S. indexes are more heavily skewed towards tech and other growth stocks that tend to carry higher valuations. Those stocks have helped propel the U.S. stock market since the financial crisis a decade ago and helped push S&P 500 performance ahead of European markets, but could fall out of favor as rising bond yields and inflation fears cut into their valuations.

Several factors could complicate the decision to shift into European stocks. With tech and internet giants such as Apple and Amazon continuing to put up strong profits, investors may be reluctant to cut back on a trade that has worked for years.

As inflation worries have hit U.S. stocks in recent weeks, there are also some concerns about euro zone inflation, which is approaching 2%, its fastest rate in years.

Any setbacks to Europe’s COVID-19 response and economic rebound also could undermine the case for equities there, investors said. So could a reversal in the dollar’s recent weakening trend, which would hurt U.S. investors seeking to convert profits in their euro-denominated assets back into their home currency. The dollar is down about 4% against the euro since the start of April.

“The next move we make is probably going to be to decrease the U.S. and increase international just because of the forces that we are seeing in the market,” said John Traynor, chief investment officer of People’s United Wealth Management in Bridgeport, Connecticut. But, Traynor added, “when the dollar is moving up, that hurts you if you’re investing internationally.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Marguerita Choy)

Earnings, Chip M&A Talks Keep European Stocks Buoyant

The pan-European STOXX 600 index rose 0.6% after suffering a 1.5% loss in the previous session. Asian stocks and U.S. futures, however, struggled after a hint of tapering talk from the U.S. Federal Reserve, while still reeling from a crash in cryptocurrencies. [MKTS/GLOB]

French conglomerate Bouygues gained 2.3% after it raised the full-year guidance for its telecoms division and reported a smaller than expected first-quarter core loss.

Deutsche Telekom added 1% on raising its medium-term core profit outlook.

Oslo-listed chipmaker Nordic Semiconductor jumped 8.8% after an Italian daily reported that Franco-Italian chipmaker STMicroelectronics is mulling an offer to buy the company.

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

Stocks Slip, Crypto Haemorrhage Deepens Amid Inflation Worries

By Hideyuki Sano

Also weighing on digital coins were new Chinese restrictions on financial institutions providing services related to cryptocurrency transactions.

European stocks are expected to drop, with both Euro Stoxx futures and Britain’s FTSE futures trading about 1% lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3% though Hong Kong and South Korea are closed for holidays.

Mainland China’s CSI300 slipped 0.1% while Japan’s Nikkei lost 1.5%.

U.S. S&P futures fell 0.3% in Asia a day after Wall Street stocks slid in late Tuesday trade, unable to sustain gains made after bumper earnings from Walmart and Home Depot.

The S&P 500 on Tuesday lost 0.85%, with telecom shares leading the decline, while the Nasdaq Composite dropped 0.56%.

“Due to supply chain disruptions and labour constraints, there are worries companies may not be able to match their supply with increasing demand,” said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank.

While demand is recovering fast as many developed countries have made progress with COVID-19 vaccination, companies are facing obstacles from shortages of chips, containers, and in the United States workers, too, stoking worries of higher prices.

The Federal Reserve has stuck to the narrative that a recent rise in inflation would be transient and that it therefore should keep its easy monetary policy settings.

The minutes from the Fed’s April meeting, to be published late on Wednesday, are expected to repeat that message.

“Inflation remains the biggest theme, whether it is real and whether the Fed may need to change its policy because of that,” said Kazushige Kaida, head of forex sales at State Street Bank’s Tokyo branch. “At the moment, markets are putting faith, after a fashion, in the Fed’s narrative.”

Yet inflation data from UK and Canada due later on Wednesday could rekindle concerns following an unexpected pickup in U.S. consumer inflation shown earlier this month.

That could hit assets whose prices have been bolstered by monetary easing, including cryptocurrencies, which rose sharply over the past year and are seen by some as exemplifying an excess created by a “wall of money” from central banks.

Bitcoin dropped as much as 10.2% to hit its lowest level since early February, bringing its loss from a peak of $64,895 hit just over a month ago to more than 40% at that point. It last stood 7.5% lower at $39,645.

Ether, the second largest cryptocurrency, shed as much as 15.5%, and a third of its value from its record peak hit last Wednesday. It last changed hands at $3,018, down 10.7%.

While cryptocurrencies were bruised by China’s fresh ban on their transactions, they were not alone in facing pressure.

Some commodities that have benefited from reflation trade have also lost steam, with U.S. lumber futures losing almost 25% in the last three sessions.

Oil prices pulled back also after media reports the United States and Iran have made progress on reviving a deal restricting the OPEC country’s nuclear weapons development, a development that could lead to increased supply from Iran. [O/R]

U.S. crude futures dropped 1.0% to $64.83 per barrel while Brent futures lost 1.0% to $68.05 per barrel.

In the currency market, the dollar stayed under pressure as U.S. yields stayed flat.

The euro hit a near three-month high of $1.22355 while the British pound held firm at $1.4191, staying near a three-month peak touched on Tuesday.

The dollar stood at 108.92 yen after four straight sessions of decline.

Precious metals were solid, with gold hitting its highest level since late January on Tuesday and last stood at $1,867.50 per ounce.

(Reporting by Hideyuki Sano; Editing by Sam Holmes)

Asian Shares Push Higher, Dollar Eases

By Paulina Duran

Equities in Europe and the United States looked set to follow. FTSE futures rose 0.76% and EuroSTOXX 50 futures traded 0.68% higher, while S&P 500 futures were up 0.33%.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.56% after a mixed session on Monday, still not recouping losses of the last few weeks amid new clusters of COVID-19 cases that are prompting some economies to impose fresh anti-virus restrictions.

Shares in Taiwan, which is seeing a spike in cases, jumped 4.77% as lawmakers said it was in talks with the United States for a share of the vaccine doses President Joe Biden plans to send abroad. That trimmed the index losses in May to 8.4% so far.

Japan’s Nikkei rose as much as 2.3% on solid earnings reports and bargain hunting, while Hong Kong’s stocks were up 1.3%. China’s blue-chip CSI300 index was 0.08% lower.

“This is a bit of a reversal from the pullback last week post the big inflation numbers,” said Chad Padowitz, chief investment officer at Talaria Capital in Melbourne.

“Time will tell whether inflation will be transitory or more pervasive but I think that now that U.S. yields have stabilised, that’s allowed the market to digest some of that,” he said.

“But the reality is we have moved into a higher volatility regime, and because of that we expect to see larger daily movements than in recent years.”

Spot gold traded around $1,869.06 an ounce, near a three-and-a-half month high, after the Empire State Manufacturing Survey, produced by the New York Fed, showed the highest prices paid since the series began in 2001. [GOL/]

“Investors seem to take the view that what matters is that the US economy is recovering, rather than worry too much about the precise strength of the recovery at any particular moment in time,” BofA rates strategists said in a note.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, helping to reassure markets that the Fed will not tighten early.

But markets are waiting on Wednesday’s release of the minutes from the Federal Reserve’s policy meeting last month, which could shed more light on the policymakers’ outlook on inflation and an economic rebound.

In Australia, minutes of the central bank’s May policy meeting showed it believed wages would likely need to expand “sustainably above 3%” to generate inflation, underscoring how long rates could remain near zero. Wage growth is currently running at just 1.4%.

Australia’s benchmark rose 0.73%, while Singapore stocks gained 1.8% after falling 4.5% last week as the country tightened Covid-19 restrictions in response to a rise in the number of community infections.

MSCI’s gauge of stocks across the globe was pushed 0.34% higher at 700.83.

The dollar teetered near multi-month lows against European currencies as Treasury yields stalled in the wake of Kaplan’s comments.

U.S. Treasury yields traded a third of a basis point wider to 1.6437%, while the two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 0.1551% compared with a U.S. close of 0.153%.

The dollar index was down 0.096%, with the euro 0.10% higher at $1.2165.

Bitcoin rose 7%, paring some of its steep losses since Tesla boss Elon Musk said would stop taking bitcoin as payment due to environmental concerns about energy used to process transactions. Ether jumped 7.6%.

Oil prices rose, with Brent crude and West Texas Intermediate (WTI) crude both up around 0.4% in Asian trade on expectations of stronger fuel demand as the U.S. and European economies reopen.

(Reporting by Paulina Duran; editing by Richard Pullin and Kim Coghill)

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)

European Stocks Resume Slide on Rising Inflation Worries

The pan-European STOXX 600 index fell 1.0%, heading further away from all-time highs.

Basic resources and oil and gas sectors, among the recent top gainers on the back of a surge in commodity prices, fell over 2% as a strong dollar put a dent in metal and oil prices. [MET/L]

British luxury brand Burberry tumbled 8.8% on reporting a 10% drop in annual sales, weighed down by the COVID-19 pandemic.

UK’s biggest broadband and mobile provider, BT Group, fell 5.4% as it reported a 7% fall in revenue and a 6% fall in adjusted earnings for the full year.

Markets in Denmark, Finland, Norway, Sweden and Switzerland were closed for public holiday.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva)

World Shares Resilient, Drugmakers Hit by Biden’s Move on Vaccines

By Hideyuki Sano

MSCI’s broadest gauge of world stocks, ACWI, was up slightly and European stocks are expected to open flat with both Euro Stoxx futures and Britain’s FTSE futures little changed.

Japan’s Nikkei jumped 1.8% as it reopened after a five-day holiday.

But MSCI’s index of Asia-Pacific shares outside Japan lost 0.15% as Chinese shares, also resuming trade for the first time since last week, wobbled. The CSI300 fell 1.3%, led by falls in biotech firms.

China’s healthcare share index dropped more than 4% after U.S. President Joe Biden threw his support behind waiving intellectual property rights for COVID-19 vaccines.

Biden’s move hit U.S. vaccine makers, too, including Moderna, but Wall Street was supported overall by gains in energy and other cyclical shares.

Dow hit a record high overnight, having risen 0.29%, while the S&P 500 added 0.07%.

“This year, both the U.S. and Chinese economy could grow 6% or more. If the world’s two biggest economies are growing that much, clearly that’s positive,” said Norihiro Fujito, chief investment strategist, Mitsubishi UFJ Morgan Stanley Securities.

Against this backdrop, commodity prices are riding high, with copper flirting with 10-year peaks.

Oil prices extended gains to edge near their March tops as crude stockpiles in the United States, the world’s largest oil consumer, fell more sharply than expected.

U.S. crude futures stood at $65.65 per barrel, little changed on the day but just below Wednesday’s two-month high of $66.76. [O/R]

As agricultural products such as corn, soybeans and wheat, have gained sharply in recent weeks, Thomson Reuters CRB index has risen to its highest level since 2015, having gained more than 21% so far this year.

BONDS AND CURRENCIES

Higher commodity prices are fuelling inflation expectations in the bond market.

The U.S. breakeven inflation rate, or inflation expectations calculated from the yield gap between inflation-linked bonds and conventional bonds, rose to as high as 2.48% overnight.

But the U.S. nominal bond yields held relatively stable, with the 10-year U.S. Treasuries yield little changed at 1.584%.

“Bonds were supported partly because the pace of vaccinations has slowed in the States and as real-money investors are starting to buy,” said Naokazu Koshimizu, economist at Nomura Securities.

“The rise in inflation is also driven more by supply constraints than demand, which is why we are seeing rising inflation expectations and a fall in nominal yields,” he added.

In currencies, the Australian dollar briefly dropped as much as 0.6% after China said it was indefinitely suspending all activity under a China-Australia Strategic Economic Dialogue, the latest setback for their strained relations.

It last stood down 0.15% at $0.7734

The British pound was flat at $1.3910 ahead of a central bank policy review.

The Bank of England could slow the pace of its bond buying to allow its quantitative easing programme to last until the end of the year, as it could reach the cap by September at the current pace of buying.

Investors also looked to Scotland’s election that could trigger a showdown with British Prime Minister Boris Johnson over a new independence referendum.

Other currencies were little moved, with the focus on Friday’s U.S. monthly jobs report which is expected to show that nonfarm payrolls increased by 978,000 jobs last month.

The euro stood flat at $1.2004 while the yen changed hands at 109.35 per dollar.

(Editing by Himani Sarkar and Kim Coghill)

European stocks slip as Fed caution offsets upbeat bank earnings

By Sruthi Shankar

The pan-European STOXX 600 index slipped 0.3%, with travel and leisure stocks easing from all-time highs, and miners retreating after a recent rally.

The region’s banking sector was up 0.3% and insurers rose 0.6%.

Deutsche Bank jumped 6.5% to the top of STOXX 600, as strength at its investment bank helped the German bank post a better-than-expected first-quarter net profit.

Topping London’s FTSE 100, Lloyds Banking Group rose 3.3% after reporting a better-than-expected profit.

Sweden’s SEB and Spain’s Santander inched lower after their quarterly results.

“At a market level, Europe has performed strongly year-to-date and it’s clear that there has been an anticipation that the recovery will be quite sharp and strong,” said Tom Dorner, investment director for European equities at Aberdeen Standard Investments. “You’re still seeing a rotation in the market in favour of the more cyclical names like banks and autos.”

Investors, however, stayed away from making big bets ahead of the U.S. central bank’s policy announcement due at 1800 GMT. Policymakers are widely expected to reaffirm their stance to keep monetary policy loose until enough economic progress has been made.

Earnings at European companies in the first quarter of 2021 are expected to surge 71.3% from a year earlier, according to Refinitiv IBES data, up from last week’s forecast of a 61.2% jump.

The world’s biggest advertising company WPP rose 2.9% on returning to underlying growth in the first quarter, as clients launched new products and brands.

German food delivery company Delivery Hero jumped 5.9%, as it expects revenues to more than double in 2021.

Among decliners, Lysol maker Reckitt Benckiser Group fell 1.4%, even as the company backed its full-year outlook.

British supermarket chain Sainsbury’s dropped 2.5%, after it reported a 39% fall in annual underlying profit.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Rashmi Aich)