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LIVE MARKETS-A medium term view on the U.S. dollar

· 03/17/2021 08:48
LIVE MARKETS-A medium term view on the U.S. dollar

European Stoxx 600 down 0.5%

Autos stock index best performer, up 1.8%

BMW shares jump after strong 2021 forecast

Verbund shares fall after results

- Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com



A MEDIUM-TERM VIEW ON THE U.S. DOLLAR (1244 GMT)

The dollar is holding steady ahead of today’s Fed policy meeting outcome after rising recently as a fresh spike in Treasury yields re-ignited inflation fears and sparked a sell-off in riskier currencies.

But this kind of relationship might change, if we take a broader angle.

A Fed on hold well into 2023 is likely to see greater pressure on the dollar on “deteriorating external account and negative real yields,” according to Deutsche Bank, which sees EUR/USD “rising and exceeding medium-term measures of purchasing power parity of around 1.25.”

A new framework adopted by the central bank last year means it will allow inflation to rise above its target for a period to make inflation average 2% over time. nL1N2LA2EI

“Rising back-end yields and a weaker dollar are entirely consistent with historical experience: the correlation between the two has in the past been close to zero, and what matters most for the dollar is front-end real yields,” according to Deutsche Bank analysts.

A central bank that endorses a controlled overshoot of inflation, as the Fed is supposed to do for a foreseeable future, “is likely to do significant damage to the dollar.”

With U.S. fiscal stimulus targeting low income households with high marginal propensity to consume, rising domestic demand is expected to widen the current account deficit.

In the chart below the euro dollar rate EUR= (green) recently falling as U.S. yields US10YT=RR (orange) rise.

(Stefano Rebaudo)

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ESG FLOWS HYPE, BUT PERFORMANCE SLOWS (1152 GMT)

Flows into ESG strategies continue to gather momentum.

In the first two months of the year, $16.7 billion went into long-term retail funds in the U.S. and $99.7 billion into non-US funds, according to figures from Jefferies.

"In addition to positive flow momentum, new product launches with ESG designations also continue to flourish," the analysts add.

March marked a milestone for sustainable finance in Europe, they add, with the launch of the Sustainable Finance Disclosure Regulation (SFDR).

"It is designed to curb "greenwashing" throughout the entire investment value chain (asset managers, pension funds, insurers and advisers)".

From now on, products that do not take account of ESG criteria will need to say so, while products promoting environmental or social characteristics will need to say if they are meeting their goals.

But so far in 2021, ESG investment performance has slowed down compared to the previous year.

"The resurgence in value strategies, small caps and cyclical industries have all been factors," Jefferies notes.

(Joice Alves)

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CHALLENGING TESLA IN THE STOCK MARKET (1058 GMT)

German carmakers' efforts to challenge the the world’s leader in electric vehicles Tesla TSLA.O are starting to pay off also in the stock market, it seems.

Deutsche Bank analysts recall that yesterday big tech stocks did well despite rising interest rates, with retail favourites still on the rise with one notable exception.

"One such favourite Tesla (-4.39%) was down on the day though and it must be significant that VW's preferred shares rose +6.71% on the company's plans of how they can beat Tesla to be the world's leader in electric vehicles," they say.

Below the chart of Volkswagen (orange) and Tesla (blue) stocks in the recent days.

It seems that retail investors have targeted Europe after Volkswagen announced its ambitious plans on electrical driving. nL1N2LE1MU nL8N2LE0WX

BMW BMWG.DE said today it expects at least half of its sales to be zero emission vehicles by 2030, setting a more conservative target than some rivals in the race to embrace cleaner driving. nL1N2LF0ED


(Stefano Rebaudo)

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AUTOS STOCKS PROP UP THE STOXX 600 (0853 GMT)

European STOXX 600 index is just below the floating line with autos stocks still on the rise after yesterday’s jump, while commodities related stocks are in negative territory.

More good news is boosting the autos stock index .SXAP, which is up 1.4%, hitting a fresh two-year high.

Shares in BMW BMWG.DE are up 4.4% after the company said it expects a significant year-on-year increase in group pretax profit in 2021. nL1N2LA2EI

Volkswagen’s ambitious expansion plans in electric driving are also boosting the sector. Its shares are rising 2.3%.

Basic materials SXPP and oil and gas .SXEP are among the worst performers after their recent rally.

The STOXX 600 index .STOXX is down 0.2%.

Financial markets across the globe are on hold ahead of the Fed policy meeting outcome, which is expected to give clues about next central bank’s moves on interest rates.

Eyes also on this week's first high-level, in-person contact between Beijing and Washington since U.S. President Joe Biden took office.



(Stefano Rebaudo)

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WHAT'S THE (DOT) PLOT, CHAIR POWELL? (0858 GMT)

It's Federal Reserve day and market focus is on the central bank's rate-hike projections for 2023 in the so-called "dot plot."

Some economists expect this to show the Fed now expects one rate hike for 2023 versus none in December. An unchanged median dot for 2023 could be interpreted as the Fed pushing back against higher bond yields and markets' pricing of rate hikes.

The Fed will deliver its statement and economic forecasts at 1800 GMT, followed with a news briefing. Until then, barring unforeseen events, markets will likely stay calm. Ten-year U.S. yields are just off 13-month highs US10YT=RR, the dollar index =USD is little changed and equity futures are a touch lower ESc1, NQc1.

The tone across world stocks is cautious too, with Asian stocks tracking Wall Street's Tuesday fall and European markets too set to open softer STXEc1.

In the euro zone, it's the final day of voting in the Dutch national election -- the first major general election in the EU since the pandemic began.

Prime Minister Mark Rutte's VVD Party is expected to secure a fourth term, but there is a risk markets are not adequately pricing gains at the ballot for anti-establishment forces.

Some good news for AstraZeneca AZN.L as Australia's pharmaceutical regulator said the rollout of the company's COVID-19 vaccine would continue, despite many European nations pausing vaccinations to investigate reported side-effects.

The EU regulator will release findings on Thursday.

Elsewhere, Credit Agricole Italia CAGR.PA has secured a green light from European Central Bank supervisors for its planned takeover bid of third-tier Italian lender Credito Valtellinese PCVI.MI nL8N2LF1FK.

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

- Fed monetary policy decision and news conference.

- German, UK German new car registration data.

- US housing starts data due.

- Corporates: BMW said it expects a significant year-on-year increase in pretax profit; Raiffeisen Bank aims to distribute 20%-50% of consolidated net profits; retail investment platform Hargreaves Lansdown 2021 profit to beat expectations.

- Italy's biggest insurer Generali GASI.MI is studying an acquisition in Russia worth nearly 2 billion euros ($2.4 billion), according to a media report. nL8N2LF0Y5

(Dhara Ranasinghe)

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ON HOLD BEFORE THE FED (0628 GMT)

European stock futures are broadly unchanged along with their U.S. peers as financial markets across the globe are on hold before the U.S. Federal Reserve policy meeting outcome.

Investors are waiting for cues about central bank’s future moves on interest rates after a jump in government bond yields triggered by expectations of stronger than expected economic growth and inflation.

Market will be closely watching also the first high-level in-person contact between Beijing and Washington since U.S. president Joe Biden took office. The meeting among Chinese and U.S. officials will take place in Alaska on March 18 and 19.


(Stefano Rebaudo)

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