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* STOXX 600 edges higher
* DAX hits new record at 14,505 points
* ITV shares down after presenter Morgan leaves
* Quilter shares surge as company announces dividend
March 10 - 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
UK TAX HIKE: LOOKING AT THE EPS HIT (1245 GMT)
There's been quite a lot of optimism triggered by the
passage of the $1.9 trillion U.S. stimulus package but probably
less thought put into who will eventually pay the bill.
It's a bit the elephant in the room that most governments,
wishing to keep the recovery alive, would rather not mention
just right now.
Britain however bravely spilled the beans last week when a
corporate tax hike popped out of chancellor Rishi Sunak's red
budget box.
"In the UK, the announced rate increase to 25% from 2023
should translate into a 3-6% hit to EPS", Barclays European
equity strategy team wrote in a note this morning.
FTSE 100 blue chips with a large majority of their revenues
coming from outside the UK and an already high effective tax
rate will likely see their earnings taking a less cut, in the
region of about 3%, Barclays analysts wrote.
While Joe Biden's administration has not yet unveiled the
specifics, rising taxes are coming as surely as winter in Game
of Thrones.
Barclays also stresses that there's a global push against
tax loopholes, particularly on tech and IT groups.
All in all, investors should prepare for corporate profits
to be further taxed moving forward.
"No doubt the losers from this move will at least partly be
those who have historically ‘managed’ their tax affairs more
efficiently", the Barclays note concludes.
Who on earth could that possibly be?
Here's a chart from the report showing the FTSE 100
effective rate tax is higher than the FTSE 250 and 350:
(Julien Ponthus)
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AN (ESG) ALCOHOL PROBLEM? (1227 GMT)
ESG-related concerns have hit valuations of tobacco
companies quite strongly over the past few years.
In the meantime, the alcoholic beverages industry, is
holding up, with ESG issues not being a concern quite yet,
Jefferies analysts say.
But it is worth keeping eyes on how things could develop as
ESG is "the single biggest risk for alcoholic beverages
companies' share prices".
If investments in alcohol mirror what happened in the
tobacco space, declining earnings and de-rating could push share
prices down 75% in Jefferies' worst case scenario.
Here is how tobacco valuations have faired as ESG asset
under management increased.
But how big is the chance of alcohol stocks taking such
dramatic hit?
According to Jefferies, the ESG risk is low at the moment as
regulators have quite a different view on how harmful cigarettes
and drinks are.
The World Health Organisation advocates "there is no safe
level of exposure to tobacco. For alcohol, the aim is to reduce
the harmful use... as opposed to eradicating it altogether".
Also backing the alcohol industry, there is COVID. And no,
not because people confined at home needed more booze! Actually
global alcohol declined 8% last year.
It's because the industry's reputation increased during the
pandemic as it offered, notably, to produce hand sanitizer,
Jefferies adds.
(Joice Alves)
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ECB: DIVIDED GOVERNING COUNCIL OR JUST POLICY? (1128 GMT)
Why has the ECB's approach to rising yield been neutral
recently? Disagreement inside the council or just policy?
These are some of the questions analysts are asking
themselves after the central bank failed to increase the pace of
the PEPP recently despite rising
borrowing costs.
PEPP data doesn’t show "a willingness to send a strong
message to the market that the ECB will defend a specific yield
level," ING analysts say.
This is "a sign the ECB is only willing to lean against too
sharp an adjustment higher in rates," a view which "chimes in
with mixed messaging received from governing council members."
If this is the case, the 10-year Bund yield would rise to
-0.15% mid-year and to 0% at year end, they add.
It’s also true that if we look at real yields, they have
fallen since Lagarde's speech about monitoring nominal yields on
February 22. See the chart below (vertical line on Feb 22) for
the German 10-year inflation-linked benchmark.
In December 2020 the ECB increased its PEPP envelope and
operated a shift in policy that Citi analysts interpreted as a
step towards a form of yield curve control.
“Since then, however, the ECB has seemed unable, or
unwilling, to follow through on its December decisions,” they
say in a research note.
“Recent speeches by members of the Executive Board evidence
what we see as very profound disagreements on what the policy
is, or should be,” they add.
(Stefano Rebaudo)
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EUROPE HOLDS ITS GROUND AT THE OPEN (0826 GMT)
European stocks were expected to pull back at the open after
two stellar sessions this week but there's no sign of a tactical
retreat.
Looking at the DAX, Germany's benchmark is up about 0.1% and
in striking range of another record high.
France's CAC 40 is also rising 0.2% and it's really London
which is pulling the STOXX 600 (-0.1%) just below the floatation
mark.
The FTSE 100 and 250 are losing about 0.5% at the moment
with the big miners taking big hits at the open.
Rio Tinto is down 3.5%, and Fresnillo and BHP Group -2.5%
each.
Britain's ITV is losing 4.1% but it's not clear at this
point whether it's due to presenter Piers Morgan leaving his
high-profile breakfast slot with the broadcaster after his
criticism of Prince Harry's wife Meghan.
(Julien Ponthus)
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DREAMING OF A GOLDILOCKS (0804 GMT)
Yesterday's rally on Wall Street might have felt like
vindication for any strategists arguing that rising Treasury
yields are no threat to stock markets, as long as the upward
trajectory is orderly and in line with economic recovery.
Not too hot, not too cold, such a Goldilocks recovery would
help corporate earnings back to pre-COVID 19 levels while
keeping inflation in check.
Focus then is on bond yields; 10-year U.S. borrowing costs
US10YT=RR, up more than 60 basis points this year, slipped to
1.537% after Tuesday's sale of 3-year notes went off well.
All eyes now on Wednesday's 10-debt sale -- it was a weak
7-year auction on Feb 25 that sent yields 20 bps higher, with
spillover into equity markets (Full Story).
Inflation fears are creeping up in the background too with
growth forecast upgrades and the passage of the $1.9 trillion
U.S. stimulus package. So U.S. CPI data due 1330 GMT is another
data point to watch.
And data today showed China's factory gate prices rising at
their fastest pace since November 2018 in February, raising
expectations for robust growth. (Full Story)
On the Goldilocks front, it certainly felt that way in
Europe the past couple of days; cyclical shares benefited from
the reflation trade while tech was turbocharged on Tuesday by
the Nasdaq's 4% rebound. Futures indicate a bit of pullback
today however, in Europe as well as New York.
Finally, the dollar continues to make headway against other
currencies while bitcoin BTC=BTSP turned lower after earlier
topping $55,000 for the first time since Feb. 22.
Key developments that should provide more direction to markets
on Wednesday:
Kazakhstan central bank meets 0900 GMT
Bank of Canada meeting 1500 GMT
Croatia central bank meets
German 10-yr Bund auction
US Treasury 10-year auction
US Feb CPI
US corps: Tupperware, Campbell soups
Europe corps: Adidas expects strong rebound, Inditex's 2020 net
profit falls 70%
(Julien Ponthus)
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MORNING CALL: LIMITED PULL BACK IN SIGHT (0621 GMT)
A limited pull back is in sight this morning for European
bourses after yesterday's session which generated a record high
for Frankfurt's DAX and sent the STOXX 600 in kissing distance
of its pre-COVID 19 highs.
Futures for the German benchmark index and the EuroSTOXX50
are trading down 0.4% while FTSE futures were down close to
-0.8%.
The same downward trend could be seen for Wall Street
derivatives after a stellar session during which the Nasdaq
surged about 4% as treasury yields eased.
MSCI's broadest index of Asia-Pacific shares outside Japan
was last up 0.2% with Asian stocks bouncing back from a
two-month low.
(Julien Ponthus)
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