- European shares up 0.2%
- Utilities leads sectoral gainers
- Wall Street shut for Thanksgiving
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TURKISH BANKS: CAP RAISES ON THE HORIZON?
The Turkish lira is licking its wounds following this week’s historic drop to records lows but despite the apparent calm, local banks will face difficulties. read more
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Credit Suisse has taken a fresh look at the sector and even though it says all banks under its coverage “appear comfortable” on the liquidity front, it expects some banks to need capital injections or forbearance measures for capital ratios.
“The regulator is likely to redefine the solvency related forbearances in a more favourable way, in case the depreciation pressure on TL continues. We no longer expect the regulator to allow dividend distribution from 2021 earnings,” writes Ates Buldur, analyst at the Swiss investment bank.
“For state banks, another round of capital injection may be considered as well. We do not rule out the possibility of well-capitalized private banks carrying out rights issues to maintain sizeable buffers,” he adds in a note.
Every 10% depreciation in the lira has a negative impact on the banks’ capital ranging for 25 to 80 basis points, according to Credit Suisse calculations based on management guidance.
In the snapshot you can see how Turkish banking stocks have underperformed the MSCI World Bank index.
THE BULL MARKET IS NOT YET OVER (0949 GMT)
Despite European stocks (.STOXX) are on track for their second-best annual returns since the 2008 financial crisis after year-to-date gains of more than 20%, analysts are not calling time out yet on the rally.
Joining fellow European market bulls from Morgan Stanley and BNP Paribas, strategists from Societe Generale are also optimistic on the European markets outlook for next year.
They predict a 9% upside to European stocks from current levels by end-2022, mainly driven by solid earnings growth in the backdrop of a supportive macro environment with cost inflation likely to peak soon.
Their top calls: Long European Green Deal basket, Long banks, Long European Capex, Long European buy backs index.
TECH, FOOD, LUXURY AND BIG PHARMA TO THE RESCUE (0850 GMT)
A bounce in tech and heavyweight food, healthcare and luxury stocks is helping the STOXX 600 (.STOXX) bounce with somewhat more conviction today after yesterday’s volatile session.
Investors pondering risks associated with a resurgence of COVID cases in Europe and policy tightening in the U.S. are opting this morning for a defensive tilt, while the cyclical banks and oil stocks are seeing pressure to the downside.
The pan-European equity benchmark was last up 0.5% with shares such as chip firm ASML, drugmakers Roche and Astrazeneca, LVMH, and food giant Nestle all ranking among the top positive weights to the index, as you see in the snapshot.
Well-received results from cognac maker Remy Cointreau and radiation therapy equipment maker Elekta also provided support, being their shares up 10% and 7% respectively.
AMERICANS CAN GIVE THANKS (0812 GMT)
It’s Thanksgiving and the United States indeed has cause to celebrate. Data released on the eve of the holiday showed robust consumer spending, jobless claims at the lowest levels since 1969 and a 4.1% monthly rise in the core PCE inflation index.
The figures reinforced the picture of an economy speeding away from the rest of the world still struggling with COVID-19 fallout. So much so that anxiety about rising inflation has taken root at the U.S. Fed, minutes from its last meeting showed also on Wednesday read more .
It’s a piquant contrast with Europe, where data just showed inflation and surging coronavirus infections hitting German consumer morale which is back at June lows . Japan’s economy meanwhile contracted 3% in the third quarter — a contrast with the U.S. 2%-plus third quarter expansion L1N2S60MU
Stock markets in Asia and Europe are firmer riding on the coat-tails of Wall Street which ended higher on Wednesday. But one result of the U.S. data beats is a dollar in “beast mode” in the words of the Pepperstone brokerage in Australia. This morning it’s just off 17-month highs versus the euro and five-year highs to the yen , .
It’s bad news for emerging markets where many countries are seeing eye-popping inflation figures, potentially forcing more interest rate rises. South Korea on Thursday raised interest rates for the second time this year and further upped inflation forecasts.
Turkey of course is the outlier. President Erdogan’s steadfast refusal to countenance higher interest rates has tipped his country into crisis. With the lira down 26% this month versus the dollar , expect the usual references to Thanksgiving turkeys in news headlines and bank research notes read more .
Key developments that should provide more direction to markets on Thursday:
-German coalition eyes return to debt limits from 2023, open to EU reforms read more
-Swedish PM resigns on first day in job, hopes for swift return read more
-Sweden Riksbank rate decision
-ECB speakers: ECB President Christine Lagarde; ECB board members Frank Elderson, Philip Lane, Edouard Fernandez-Bollo
-Emerging markets: South Korea raises rates; Sri Lanka on hold
-Remy Cointreau raises annual outlook after H1 profit beat read more ; Italy to discuss KKR’s move on TIM after binding bid
EUROPE: STEADYING ABOVE THREE WEEK LOWS (0745 GMT)
After edging up just slightly yesterday following a volatile session, European shares look set for a second day of marginal gains that should help the STOXX (.STOXX) regional benchmark to steady above three-week lows.
Investors are trying to set aside concerns over new restrictions in Europe, even as Germany had record COVID cases, and look past Fed minutes showing more officials are open to speeding up bond-buying taper and move faster to raise rates.
Wall Street will be shut for Thanksgiving, likely curbing activity across the board, but its positive close overnight and gains in Asian tech stocks bode well for risk sentiment here in Europe today.
European stock futures were last up between 0.1% and 0.3%.
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