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LIVE MARKETS-Europe's worst session since December

05/11/2021 12:03
LIVE MARKETS-Europe's worst session since December

Major U.S. indexes down, but well off lows

All major S&P sectors red: energy slides ~2%

Dollar, gold down modestly, crude now ~flat

U.S. 10-Year Treasury yield ~1.62%

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Well inflation may be the dog that doesn't bark, but it sure can bite.

The pan-European STOXX 600 had its worst day since December, losing about 2.1% as traders fear inflation is actually getting real.

In the grand scheme of things though, European equities are just about 10 points from yesterday's record high of 446.2 points.

While one would expect tech to get the worst hit, the sector's losses were bang in line with the broader market and it's the travel and leisure segment which lies in a pool of red.

The index lost 5.9%, dragged down by British Airways-owner IAG ICAG.L, down 7.4%. Investors didn't exactly welcome its plans to $1 billion through a convertible bond to strengthen its balance sheet.

As noted by Josh Mahony at IG, there seems to be more depth to negative sentiment than just selling growth stocks as government bond yields tick up.

"While yesterday’s US selloff was geared heavily towards those high P/E growth names, today has seen traders take on a more indiscriminate risk-off approach", he wrote in his closing note.

(Julien Ponthus)



Saira Malik, CIO, Head of Global Equities at Nuveen, is out this week with some thoughts on emerging markets.

According to Malik, though global equities may appear overvalued historically, relative valuations appear to favor emerging markets. In fact, she says EM equities are currently trading at a 25% discount compared with their historical relationship to U.S. equities.

Malik says a number of important tailwinds reinforce this point including strong growth in China, a weaker U.S. dollar, possible geopolitical improvements, and a widening growth gap with EM earnings per share 10% higher than in the U.S.

Her bottom line is that although several EM countries continue to struggle with the pandemic, she is optimistic that the global economy will eventually follow a similar path to recovery as the U.S.

As a result, she believes "this is a good time for investors to consider evaluating their exposure to emerging market equities given their solid prospects."

(Terence Gabriel)



Nearly 300 miles off the southeast tip of South America and with a population of just 2,563, the Falkland Islands has just got its first ever sovereign credit rating. nL1N2MX2MH

The territory, which is also claimed by Argentina as the Malvinas, had almost no debt until last year, but now it wants to tap borrowing markets to fund improvements to its main port in Stanley (population 2115).

It makes sense. Fishing is half of the Falklands $300 million-a-year economy and there are hopes that oil and gas exploration and tourism which had been driving 11% a year growth, and also rely on boats, will power it going forward.

So what rating does such a remote part of the world deserve? A respectable 'investment grade' A+ according to S&P. That puts it in line with both China and Japan and though it is two notches below Britain's score, it is 12 notches above Argentina's CCC+ after it suffered a record ninth sovereign default last year.

(Marc Jones)



Data released on Tuesday added to growing evidence that a worker shortage is standing in the way of the labor market's recovery.

The Labor Department released its March Job Openings and Labor Turnover Survey (JOLTS) USJOLT=ECI, which gauges labor market churn. nAQN045BS5 nL1N2MY1CL

The report showed job openings reached 8.123 million in March - a record high - handily outpacing new hires. This, along with a drop in layoffs/discharges, suggest a tightening labor market.

Job quits inched higher. The quit rate is seen as a yardstick of consumer expectations, as workers are unlikely to walk away from a gig in times of economic uncertainty.

With demand booming as the economy reopens, the worker shortage, combined with an ongoing supply drought, appear destined to culminate in spiking inflation, which the Fed is quick to reassure will be only temporary.

Tomorrow's CPI report from the Labor Department will provide further inflation clues.

The outlook of small businesses owners grew more optimistic in April, but their inability to fill job openings reached a record high.

The National Federation of Independent Businesses' (NFIB) Small Business Optimism Index USOPIN=ECI gained 1.6 points to a reading of 99.8 in April, the highest level since the presidential election, with eight of the 10 components improving.

"Business owners now are responding to the huge progress on defeating Covid and the subsequent reopening of the economy," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "On the downside, we're baffled by the seven-point drop in the economic expectations index, which stands at a depressed -15. That looks far too gloomy."

Echoing Friday's disappointing employment report NFIB survey respondents also suggests a labor shortage.

"Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth," says Bill Dunkelberg, chief economist at NFIB. "Owners are raising compensation, offering bonuses and benefits to attract the right employees."

It should be noted that the NFIB is a politically active membership organization, and "the NFIB membership - or at least, the members who respond to the survey - skews heavily Republican," as Shepherdson points out.

Investors are in a selling mood in morning trading. All three major U.S. stock indexes are down more than 1%.

(Stephen Culp)



Coinbase Global Inc COIN.O, the platform for trading cryptocurrencies, could tumble further after it releases results on Thursday as the company comes up short on future profit expectations, warns New Constructs in a research note.

Coinbase, which is trading around $285 a share, is unlikely to report news from its first-quarter results that would justify owning shares at current levels, said David Trainer, chief executive of New Constructs.

Coinbase's valuation implies it will exceed the combined revenue of New York Stock Exchange operator Intercontinental Exchange Inc ICE.N and Nasdaq Inc NDAQ.O, Trainer said.

Investors should expect the stock, down more than 30% from its peak of $429.54 on April 14 - Coinbase's first date of trading as a public company - to continue to underperform further and its share price could fall to $100.

Coinbase is not likely to fulfil the profit expectations baked into the stock's current valuation of $58 billion. Rising competition should reduce Coinbase’s market share and pricing power as revenue and profits at the company taper off, according to New Constructs.

"We believe the stock has more downside risk ahead," Trainer said.

(Herbert Lash)



Major U.S. indexes took stinging opening hits on Tuesday, amid concerns over lofty valuations and inflation. .N

Of note, the NYSE's opening tick of -2,086 was the most negative since a -2,098 reading on June 11 of last year.

In the wake of this, the indexes are off their early lows established in the first 1 to 10 minutes or so of the session, and trying to make a comeback.

However, even with the recovery attempts, the S&P 500 growth .IGX/S&P 500 value .IVX ratio is on track for an 11th straight down day, which is longest such streak since a 12-day run of losses in September 2017.

Nearly all major S&P sectors are red, with utilities .SPLRCU and tech .SPLRCT among those taking the biggest hits. Materials .SPLRCM are the sole gainer. This as the U.S. 10-Year Treasury yield US10YT=RR pops up to the 1.63% area.

Here is where markets stand early on Tuesday:

(Terence Gabriel)



Since their April highs, Nasdaq .IXIC, .NDX, NQcv1 nL1N2M20YQ and tech-laden indexes nL1N2MN157, have come under increasing downside pressure.

In fact, CME e-mini Nasdaq 100 futures NQcv1 are now down around 7% from their April 16 record close and April 29 record intraday high, in just 17 and 8 trading days. nL1N2MX0YC

This in the wake of a noticeable momentum lag:

Indeed, with the mid-April futures' high, the weekly RSI failed to muster enough strength to reclaim the 70.00 overbought threshold. With this, it formed its third lower peak vs its early January high, which of course was well below its August 2020 peak. Thus, a protracted momentum divergence was in place.

With this week's slide, the futures are once again threatening a close below the 20-week moving average, which now resides around 13,300. The futures have recorded 56 straight weekly closes above this moving average, which is the longest such run since a 61-week streak from late 2016 to early 2018.

Additionally, the futures are violating the weekly support line from the March 2020 trough, which also now resides around 13,300.

Holding below these barriers, which are now resistance, while the weekly RSI threatens to fall into oversold territory, can keep the futures on the back foot, with the March trough, at 12,194.75, potentially the next big test.

Meanwhile, based on Tuesday's across the board premarket futures weakness, and now rising volatility measures .VIX, .VXN, the recent performance rift among various indexes may be about to be resolved with them all headed into a valley, together. nL1N2MT14J nL1N2MM1F5

(Terence Gabriel)



(Terence Gabriel is a Reuters market analyst. The views expressed are his own)