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LIVE MARKETS-What about UK and Spanish banks?

· 03/16/2021 06:33
LIVE MARKETS-What about UK and Spanish banks?

European shares up 0.4%

Euro volatility hits Feb 2020 level

Morphosys falls on outlook, Zalando up

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Yields are on the rise and financial stocks too.

After Morgan Stanley and BofA both suggested buying bank stocks, Credit Suisse keeps its overweight on financials, mentioning that it forecasts a further rise in U.S. bond yields to 1.75-2.00%.

"Banks have 15% potential upside on Credit Suisse model (80% of their performance can be explained by PMIs, Bund and Euro) rising to 28% potential upside using year-end forecast," Credit Suisse analysts say.

“Banks are much more cyclical than normal, via loan growth and dividend distribution. In addition, three of the four secular headwinds – rates, capital regulation and litigations – are largely behind us,” they add.

Besides the favourites BNP Paribas BNPP.PA, ING INGA.AS UBS UBSG.S, they say they like “retail banks in economies with the biggest bounce back potential, such as UK and Spain.”

Looking elsewhere, CS believes it’s not the time to be underweight on basic materials stocks despite their recent rally.

The “sector may pause but we avoid taking our weightings down further because the medium-term cyclical and structural support is solid,” they add.

Meanwhile the investment bank is benchmark on non-financial cyclicals, which are already “pricing a PMI of around 71, implying a 6% GDP growth versus consensus of 4.2%".

They note that non-financial cyclicals outperformed defensives by 50%, while the previous rally right after the financial crisis was 47%.

In the chart below the recent outperformance of European bank stocks and miners, which seem to have started a correction.

(Stefano Rebaudo)



European shares are off to a positive start this morning as investors are hopeful the Fed will stick to its very dovish policy stance, while being more upbeat on the macro outlook.

Gains are broad-based and spread across different sectors from banks to tech stocks and that's helping push the STOXX 600 regional benchmark up 0.5% in early deals.

What really stands out though is volatility.

The Euro STOXX 50 volatility index .V2TX has fallen below 18 for the first time since late February 2020, just before the darkest days of the COVID-19 scare roiled global markets.

In single stocks, German biotech firm Morphosys is down 10% on a disappointing outlook, while upbeat indications from Zalando are pushing the online fashion retailer up 5%.

In the snapshot, the volatility index.

(Danilo Masoni)



Exactly one year ago when the S&P 500 fell 12% for its worst day since 1987, markets were busy pricing the COVID-19 recession. Nowadays the V-shaped recovery from that downturn is the main driving force behind price action.

U.S. equities notched another record close, Germany's DAX is just below its latest all-time peak and even airline and travel stocks have mostly reclaimed pre-pandemic levels.

There are potential pitfalls of course, above all the risk of an overheating U.S. economy and inflation forcing policymakers to turn less accommodative. But even if Wednesday's Fed meeting delivers a hawkish surprise, segments of the equity markets are coping quite well with higher yields.

The Dow index of "old economy" stocks, for example, gained for a seventh straight session even as 10-year Treasury yields topped 1.6% - levels deemed worrisome only a few weeks ago.

But typical pre-Fed caution has set in: U.S. yields are down just below 1.6% mark and the dollar index is flatlining. An auction of 20-year Treasury bonds bears watching.

In Europe, facing further vaccination delays due to the AstraZeneca ruckus, stocks look set to edge up.

In corporate news, focus on Credit Suisse which warned it might incur charges following the collapse of its Greensill-linked supply chain finance.

Key developments that should provide more direction to markets on Tuesday:

  • Minutes of Australia's central bank said commodity price increases were unlikely to cause a sustained rise in inflation

  • Bank of Japan Governor said it was important to keep long-term interest rates "stably low"

  • UK economic growth will fall by 4% in the first quarter from the same period last year, the BoE governor said

  • Volkswagen is confident that cost cuts will help it raise profit margins in the coming years

  • Japan industrial output, trade, Tankan survey

  • German wholesale prices February, March ZEW

(Danilo Masoni)



European shares look set to open slightly higher, supported by positive sessions in Asia and Wall Street overnight, as the focus turns to central banks meetings, starting from the Fed.

The typical caution that sets in before a Fed policy decision however means markets will likely stay in a holding pattern and futures on main euro zone benchmarks were up just 0.1% at the time of writing.

Futures for the S&P 500 were flat after ending the previous session at a record high, while over in Asia, the MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.6%.

(Danilo Masoni)


A $65 trillion round-triphttps://tmsnrt.rs/2OvZkpj

Euro STOXX volatilityhttps://tmsnrt.rs/30OeyZu