* European shared off lows, down 0.5%
* Smiths gains after $2.7 bln unit sale
* Asian shares mixed, Tokyo up
* U.S. futures a touch lower
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POPULAR EUROPE (1211 GMT)
European equities are proving quite popular among sell-side and buy-side analysts at the
moment with positive ratings for the region piling up.
Credit Suisse just reiterated that continental Europe remains its "key overweight" due to a
pretty long list of factors which one can sum up in the following way:
1) The investment bank is above consensus for economic growth both this year and in 2022
2) PMI momentum is more favourable than in the U.S.
3) Inflation and rising yield typically help Europe outperform
4) Europe less affected by labour shortages, rising wages
5) ECB accommodative policy means "excess liquidity is the highest of any region"
6) There's a valuation discount with Wall Street
7) The trade is not crowded with cautious positioning
8) Politics: support for eurosceptic parties waning
9) Europe is home to many green or sustainable groups
BlackRock also reiterated it remains tactically overweight on the region, noting the policy
support from the ECB and the strength of the recovery.
And Emmanuel Cau, head of European equity strategy at Barclays also said in a note this
morning that his teams finds "attractive relative value in Europe vs. US".
Here are some recent blog posts showing how Europe is perceived as an attractive region for
many big investment houses:
European equities positioning has room to grow
Can Europe's earnings-driven rally carry on?
Some tailwind for European equities
(Julien Ponthus)
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WHO'S HOLDING THE MEME STOCKS HOT POTATO? (1044 GMT)
Perhaps one of the most amazing thing about the meme stock trading frenzy that took U.S.
stock markets by storm this year is that the likes of GameStop or AMC haven't (yet?) crashed
down from their highs.
At the time, many seasoned investors warned the Reddit retail crowd that the party would be
over as soon as hedge funds caught on the wrong side of the trade would unwind their shorts.
Yet, here we are in September and as you can see below, the share price of AMC and GameStop
are up a whopping 2,150% and 956% respectively year-to-date:
Traditional valuation metrics simply don't justify the share price rise so what's going on?
"Forced buying by index funds may explain the resilience of the meme stocks, which have not
crashed even after the r/WallStreetBets crowd moved on", writes Vincent Deluard from StoneX.
In a note in which he looks into the implication and opportunities from the rise of passive
investment, Deluard argues their rising market capitalisation has forced some buying from ETFs.
"Troubled movie theater chain AMC entertainment has become the largest holding of the
iShares Russell 2,000 index (IWM) as its market capitalization soared to $21 billion, five times
more than the smallest stock in the S&P 500 index", he writes.
As a result, "index fund investors may be the left holding the hot potato of the 'meme
stock' mania of 2021", he believes.
Some recent stories on meme stocks:
ANALYSIS-With GameStop earnings on tap, options traders bet on muted moves
Support.com, other new meme stocks dip, hitting pause in monster rally
MEME ETF seeks to tap retail investor sentiment
Meme stocks soar in late day trading surge, short sellers knocked
(Julien Ponthus)
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SHARE PLACEMENTS GALORE (0937 GMT)
There seems to be an unusually high number of placements in Europe driving price moves this
morning and on a day when risk-off is palpable, one may wonder whether time has finally come to
take profit out from this rally before it's too late.
Top victims of so-called accelerated book buildings by investors selling down their stakes
include carmaker Stellantis, hiring firm Adecco and retailer Asos but traders also point to
pencil maker Fila, tech firm SoftwareONE and packager Vetropack as coming under pressure as a
result of a share placement.
One London-based trader says predictions of a possible sizeable correction by year-end is
hurting markets and then adds: "There are quite a few placements which I guess can be expected
as many of the shares had a very good run".
All these stocks are down between 1.3% and 6.6% with some of them featuring among the top
fallers on the STOXX 600.
Pierre Veyret, analyst at ActivTrades, says profit taking is to be expected with benchmarks
trading close to record highs but overall he remains cautiously upbeat.
"These bearish price moves are likely to be short-lived with the long-term bullish trend for
stocks remaining valid as long as central banks hold off on any tapering," he argues.
(Danilo Masoni)
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93% OF THE STOXX IN THE RED (0736 GMT)
With over nine out of each ten stocks on the STOXX 600 posting losses it's clearly a risk
off start to the session.
The pan-regional index is down around 1% and absent any specific news trigger it seems
traders are looking to take some risk off the table ahead of tomorrow's ECB meeting amid
concerns central banks may start to taper their bond purchases.
Very few are the stocks in positive territory. Smiths Group is a standout gainer after the
industrial technology firm sold its medical unit for $2.7 billion. Its gains highlight perhaps
that in the today's market sellers are being rewarded.
Elsewhere selling pressure made little distinctions. All sub sectors are in the red with
autos and financial services leading the way, both down around 1.7%.
(Danilo Masoni)
*****
TIME TO JOIN THE GREEN BOND GANG (0653 GMT)
As governments get back to business with debt issuance after the summer break, there's
something notable about this week's debt sales in Europe -- it's green.
Germany on Wednesday will sell 10-year green bonds, a day after Spain's debut green bond
garnered an impressive 60 billion euros of demand.
Green debt issuance globally, recently passed $1 trillion for the first time, with 90% of
sovereign issuance coming from Europe. Britain will sell its first green bond later this month
while the European Union plans its first green issue in October.
A greenium index compiled by UniCredit, has risen to 4 basis points, its highest level,
indicating that demand for green paper remains strong and investors are willing to pay a premium
to buy green European government debt.
Back to Germany. The benchmark euro zone debt issuer wants to be the first to establish a
green bond yield curve and Wednesday's issuance takes it a step closer to that goal.
Another market that's seen action this week is Bitcoin. It seems to have stabilised
after a 17% plunge on Tuesday, the day it become legal lender for the first time in a
sovereign state. However El Salvador's bitcoin adoption was clouded by the price fall as well as
technological glitches and protests by mistrustful citizens.
Global stock markets too have stablised after Tuesday's wild swings but growth concerns are
weighing, with Asian shares down, Europe poised to open negative and U.S. equity futures a touch
higher.
Later in the day, watch for U.S. JOLTS job openings data and a raft of Fed speakers. And on
Wall Street, GameStop, the original 'meme stock,' releases earnings.
Key developments that should provide more direction to markets on Wednesday:
- UK supermarket Morrisons is talking to its private equity suitors and the UK
Takeover Panel regarding an auction to settle its future ownership.
- Deutsche Bank, Commerzbank CEOs attend Handelsblatt conference
- Japan upgrades Q2 GDP on stronger business spending
- PayPal heats up buy now, pay later race with $2.7 bln Japan deal
- Interest rate meetings in Canada, Poland, Croatia
- Fed speakers: New York President John Williams 1710 GMT; Dallas President Robert Kaplan
2200 GMT; Boston Fed President Eric Rosengren, Minneapolis Fed President Neel Kashkari 1800 GMT
- U.S. auctions 10-year bonds.
- US JOLTS job openings, Initial jobless claims, consumer credit
(Dhara Ranasinghe)
*****
EUROPE HEADS SOUTH (0620 GMT)
European equities look set to kick off the day just slightly in the red with futures on top
country benchmarks losing as much as 0.4% at the time of writing.
The mood in Asia wasn't exactly buoyant and although Tokyo managed to reverse initial losses
to extend its recent run driven by stimulus bets, broader equity gauges were in the red.
Meantime in the U.S. futures pointed to possible gains later on as investors await
indications from Fed speakers about how Friday's weak jobs report has impacted tapering plans.
In Europe the focus is on the ECB policy meeting on Thursday where the central bank could
unveil plans to slow down its massive bond purchases.
In corporate news, M&A could help liven up the session. French drugmaker Sanofi agreed to
buy U.S. peer Kadmon in a $1.9 billion deal, while UK tech firm Smiths Group is to sell its
medical unit to UICU Medical for $2.4 billion.
(Danilo Masoni)
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