LIVE MARKETS-Second half of 2021: it's EM equity turn
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SECOND HALF OF 2021: IT’S EM EQUITY TURN (1002 GMT)
Emerging markets' (EM) equities have been disappointing recently, with China peaking out and delaying the vaccine campaign weighing on sentiment.
But in a while, it might be their turn.
“We think that there is a scope for better EM trading potentially entering 2H. We would look to use the current weakness to add to the asset class on a 12 months horizon,” JP Morgan analysts say in a research note.
“EMs are traditionally a beta play on global growth, but they have lagged the improvement in the DM so far,” as Covid cases continue to increase, they add.
Most EM countries are only expected to achieve developed markets levels of vaccination “towards the end of this year.”
China is not in excellent shape right now.
Some of the key stocks in MSCI China, Alibaba, and Tencent are down 20-40% from highs due to increased regulatory uncertainty, with their earnings projections also under pressure.
Furthermore, the policymakers are currently focused more on removing excess liquidity than providing fresh stimulus.
JP Morgan does not expect any severe slowdown of the economy, but “M1, PMIs, credit impulse, shipping rates, and others have all rolled over, which typically matters for forwarding equity returns.”
IS IT REFLATION TRADE AGAIN? (0848 GMT)
Today it’s all about Friday’s U.S. weaker than expected job data, which pushes back the taper timing and boosts risk appetite across the board.
“Whichever way you look at it, anyone who thought that the Fed’s employment target might be in touching distance in the foreseeable future has had a dampener on Friday,” Commerzbank analysts say, recalling the maximum employment is part of the Fed mandate.
“With policy remaining supportive, we continue to see support for the reflation trade,” UBS analysts say.
They also suggest “picking companies with pricing power” as cost pressure for corporates, possible rising wage growth, and potential corporate tax increases are emerging.
But it’s not just that.
Commerzbank highlights three possible employment data scenarios, which could change the Fed attitude about tapering:
. Friday’s data were weak just because the creation of new jobs have merely been postponed, and the big boom will come in May or June;
. the sectors benefitting from the pandemic are beginning to suffer while the losers are not yet recovering;
. The recovery of the labour market might take much longer than expected.
“More erratic the recovery on the U.S. labour market, the longer the Fed will take to consider rate steps. And the longer it will allow inflation to overshoot,” Commerzbank says.
The chart shows the S&P future reaction to U.S. data on Friday.
WORLD STOCKS ROLLING HIGHER (0712 GMT)
An eventful weekend as a cyber attack forced the shutdown of much of the Colonial pipeline -- the source of half the U.S. East Coast's fuel supply. That's pushed up U.S. gasoline futures RBc1 2% while Brent crude futures are up almost 1%.
It raises the risk of gasoline shortages during the U.S. summer driving season but also of another surge in headline inflation, already seen on the rise in coming months.
Treasury yields are higher therefore, adding another two basis to a late-Friday rebound off two-month lows.
But with U.S. 10-year yields some 20 bps off recent 14-month highs, world stocks are rolling higher, hitting new record highs and European and U.S. futures indicating a robust session ahead.
Stocks are merely extending gains chalked up on Friday when a remarkably poor set of April jobs data allowed markets to push back Fed rate hike bets and sent the dollar to two-month lows. A perusal of the figures showed however, the huge miss maybe had more to do with hiring difficulties rather than jobs not being created.
In other news, pro-independence parties nabbed a majority of seats in the Scottish parliament, setting the stage for a tussle with the UK government over another independence referendum. The pound seems unfazed though, staying above $1.40; eyes possibly on the end of COVID-19 lockdowns, just a week away.
Also on the weekend, meme-inspired crypto Dogecoin lost a third of its value after Elon Musk, the billionaire Tesla chief called it a "hustle". He then proceeded to tweet that his SpaceX venture would be accepting Dogecoin as payment.
The main action though is on Ether which rose above $4000, hitting a record high for the third day straight.
Finally, earnings are winding down across the Atlantic but some 75 companies, including several banks, will report in Europe. Societe Generale leapt as much as 6.6% after it posted net 814 million-euro profit.
Key developments that should provide more direction to markets on Monday:
-New India coronavirus cases and deaths hold near record highs
- Earnings: British bakery chain Greggs raised its profit outlook after after a recovery in sales; Dignity reported a 35% jump in Q1 profit due as demand for funeral services rose
Euro zone Sentix index
Auctions: US 6-mth/3-mth bills
US earnings: Coty, Tyson Foods, Marriott, Occidental,
Europe earnings: Euronext, Centrica
EUROPEAN SHARES SEEN UP ON HOPES FOR LOW RATES, UK ELECTION IN FOCUS (0545 GMT)
Europeans stocks are seen on the rise mirroring Asian stocks, which rose amid speculation that interest rates will remain low due to receding inflationary pressure, while the pound shoots up after Boris Johnson emerged stronger from local elections. nL1N2MW0J1
Sterling GBP=D3 is at its highest in more than two months against the dollar after local elections, but worries about Scottish independence could curb sterling's gains. nL1N2MW04M
Scottish leader Nicola Sturgeon told PM Johnson that another referendum on independence was inevitable after her party won a resounding election victory.
In the meantime, Sadiq Khan from Britain's opposition Labour Party was re-elected Mayor of London on Saturday, comfortably defeating Shaun Bailey from Prime Minister Boris Johnson's Conservative Party.
Oil and gas prices jumped after a cyber attack on a U.S. pipeline operator unnerved markets.
U.S. nonfarm payrolls data on Friday showed jobs growth unexpectedly slowed in April, which gave equities a lift. nL1N2MT2XD