- European equities up 0.2%
- Public services lead the sector winners
- Wall Street closed for Thanksgiving
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CURRENCIES AGAINST THE DOLLAR: IS IT DIFFERENT THIS TIME? (1259 GMT)
The dollar is close to its highest since July 2020 against the euro according to the minutes of the US Federal Reserve meeting, and its race is probably not over yet.
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But this does not appear to be the case for emerging market currencies, although they are generally considered to be more vulnerable during times of US monetary policy normalization.
They apparently learned the lessons of the âtaper tantrumâ of 2013, when traders ditched Treasuries before the Fed, reduced bond purchases, triggering higher US yields.
In 2013, it was feared that “the rise in US interest rates could plunge many emerging markets into a deep crisis due to capital flight, causing the respective currencies to fall,” according to analysts at Commerzbank.
âThe central currency banks, which came under particularly strong pressure in 2013, also seem to have learned the lessons of the episode,â they say.
Most of them reacted very early to the current inflation risks and have already raised their interest rates, in some cases substantially, they add.
“The early start of monetary policy normalization in emerging markets is currently a great support for currencies.”
It is different for the Turkish lira, which is certainly a special case.
The minutes of the FOMC meeting reinforced expectations that the Federal Reserve will hike rates sooner than other major central banks. Read more
The chart below shows the Emerging Market Currency Index (.MIEM00000CUS) holding close to its late June highs, while the Euro / Dollar falls.
SHOW ME THE MONEY (1141 GMT)
Miners’ stocks had a long rally until mid-2021 and have only seen a slight correction since then. But now companies may have to take further steps to attract investors as the outlook for commodity prices becomes increasingly uncertain.
“We argue that mining companies could strengthen their investment case benchmarks and secure shareholder returns by increasing special dividends and buybacks over the next earnings season,” Morgan Stanley analysts said.
Obviously, some are better placed than others, given the prospects for higher cash generation.
Morgan Stanley analysts say Glencore (GLEN.L) remains their top choice among diversified mining companies, given its outlook for return on capital. Anglo American (AAL.L) appears to be the least cash-generating in H2 but this may be due to transient factors.
Glencore’s strategy will be under scrutiny during the company’s Investor Day on December 2.
TURKISH BANKS: FOCUS ON THE HORIZON?
The Turkish lira is healing its wounds after this week’s historic drop to all-time highs, but despite the apparent calm, local banks will face challenges. Read more
Credit Suisse has taken a fresh look at the industry and while it says all banks under its cover “seem comfortable” on the liquidity front, it expects some banks to need more. capital injections or withholding measures for capital ratios.
“The regulator is likely to redefine solvency-related forbearances in a more favorable manner, in case the depreciation pressure on TL continues. We no longer expect the regulator to allow the distribution of dividends from the 2021 earnings, “writes Ates Buldur, Swiss investment analyst. Bank.
“For state-owned banks, a new injection of capital can also be considered. We do not rule out the possibility that well-capitalized private banks carry out rights issues to keep important safety buffers,” he adds. there in a note.
Each 10% depreciation of the lira has a negative impact on bank capital ranging from 25 to 80 basis points, according to Credit Suisse calculations based on management guidance.
In the snapshot, you can see how Turkish bank stocks underperformed the World Bank’s MSCI index.
THE BULL MARKET IS NOT OVER YET (0949 GMT)
Although European stocks (.STOXX) are on track for their second best annual returns since the 2008 financial crisis after cumulative gains of more than 20%, analysts are not yet announcing a pause in the rally.
Joining their bullish European market counterparts at Morgan Stanley and BNP Paribas, Societe Generale strategists are also optimistic about the outlook for European markets for next year.
They forecast European equities to rise 9% from current levels by the end of 2022, mainly driven by strong earnings growth amid a favorable macroeconomic environment with cost inflation likely to peak soon.
Their main calls: Long European Green Deal basket, Long banks, Long European Capex, Long European buy backs index.
TECH, FOOD, LUXURY AND GRANDE PHARMA TO THE RESCUE (0850 GMT)
A rebound in tech and food, health and luxury goods heavyweights is helping the STOXX 600 (.STOXX) rebound with a little more conviction today after yesterday’s volatile session.
Investors pondering the risks associated with a resurgence of COVID cases in Europe and tightening politics in the United States are opting for a defensive tilt this morning, as cyclical banks and oil stocks come under downward pressure.
The pan-European equity benchmark rose 0.5% for the last time, with stocks such as chip company ASML, drugmakers Roche and Astrazeneca, LVMH and food giant Nestle ranking all of the best positive weights in the index, as you can see in the snapshot.
The well-received results of cognac manufacturer RÃ©my Cointreau and radiotherapy equipment manufacturer Elekta also provided support, with their actions up 10% and 7% respectively.
AMERICANS MAY THANK (0812 GMT)
It’s Thanksgiving and the United States indeed has something to celebrate. Data released on the eve of the holidays showed robust consumer spending, jobless claims at the lowest levels since 1969 and a 4.1% monthly increase in the core PCE inflation index.
The numbers have bolstered the image of an economy moving away from the rest of the world still grappling with the fallout from COVID-19. So much so that concern over rising inflation has taken hold within the US Fed, the minutes of its last meeting also showed Wednesday read more.
This is in stark contrast to Europe, where data has just shown inflation and soaring coronavirus infections are hitting German consumer morale which is back to June lows. The Japanese economy contracted by 3% in the third quarter, in contrast to the US expansion of more than 2% in the third quarter L1N2S60MU
Stock markets in Asia and Europe strengthened under the wake of Wall Street, which ended higher on Wednesday. But one of the results of the US data beats is a dollar in “beast mode” in the words of brokerage firm Pepperstone in Australia. This morning is right next to the 17-month highs against the euro and the five-year highs against the yen,.
This is bad news for emerging markets where many countries are seeing breathtaking inflation figures, which could lead to further interest rate hikes. South Korea on Thursday raised interest rates for the second time this year and further raised its inflation expectations.
Turkey is of course the outlier. President Erdogan’s unwavering refusal to accept higher interest rates has plunged his country into crisis. With the pound down 26% this month against the dollar, expect the usual references to Thanksgiving turkeys in newspaper headlines and bank research notes to read more.
Key developments that should provide more direction to the markets on Thursday:
-The German coalition plans to return to debt limits from 2023, open to EU reforms read more
-Swedish Prime Minister resigns on first day of work, hopes for a quick return read more
-Sweden Riksbank rate decision
– ECB speakers: the President of the ECB Christine Lagarde; Members of the ECB Executive Board Frank Elderson, Philip Lane, Edouard Fernandez-Bollo
– Emerging markets: South Korea is raising rates; Sri Lanka on hold
-Remy Cointreau raises his annual outlook after the increase in profits for the first half of the year read more; Italy to discuss KKR move on TIM after binding offer
EUROPE: STABLE ABOVE THREE-WEEK LOWS (0745 GMT)
After rising slightly yesterday following a volatile session, European stocks look poised for a second day of marginal gains that should help the regional benchmark STOXX (.STOXX) stabilize above the lows of three weeks.
Investors try to put aside concerns about new restrictions in Europe, even as Germany had record COVID cases, and look beyond Fed minutes showing more officials are open to accelerating reduction bond purchases and to increase rates more quickly.
Wall Street will be closed for Thanksgiving, which will likely dampen activity across the board, but its positive overnight close and gains in Asian tech stocks bode well for risk sentiment here in Europe today.
European equity futures rose for the last time between 0.1% and 0.3%.
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