If this is a fresh 10 year cycle, what's next?

STOXX 600 flat


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It's probably fair to say that investors are currently much more worried about a U.S. 'monetary policy mistake' (read Fed tapering) than the resurgent coronavirus pandemic.

The new wave of COVID-19 infections hasn't rocked the boat of the rally and isn't expected to despite new lockdowns and a possible recession in Q1.

What's on everybody's mind rather is when the Fed or the ECB dare think out loud about envisaging to set a horizon or conditions at which a reduction in QE could maybe be very carefully considered. (Yikes!)

Anyhow, for Nomura strategist Naka Matsuzawa, it is way too early in the new 10 year cycle, which started after the COVID-19 market crash, to worry about tightening just yet.

"We expect the risk-on market that started in April 2020 to continue until the first wave of the next financial shock, which we expect in the second half of 2022", he writes in a note in which he pours cold water current on tapering fears.

"Until there are indications that vaccine deployment has made herd immunity a strong likelihood and the government declares an end to the pandemic, neither fiscal nor monetary easing measures are likely to be withdrawn", he argues.

Moreover, he believes that the Fed will better manage forward guidance to avoid market panic attacks, like during the last cycle when the Fed embarked on rising rates.

Here's the chart explaining, according to Nomura, where we currently stand if this is indeed a new 10-year cycle:

(Julien Ponthus)



Italian bond yields started 2021 languishing around record-low levels in a straight illustration of how effective ECB bond buying has been in helping investors forget about political and financial risk in the highly indebted euro zone country.

But a fresh and rather inexplicable political crisis has promptly come to the fore to provide a timely reminder of Rome's issues with stability: a small coalition partner led by ex PM Renzi has threatened to sink Conte's government due to disagreements over funds to relaunch the economy. 

While that triggered a big move in Italian yields yesterday with more possibly in store as the week progresses, it came with little surprise to seasoned investors who have repeatedly dealt with Italy's structural woes.

"It's worth remembering that in the last 160 years, Italy has actually had 131 governments, so on average that's just under 15 months each. Indeed, the current coalition has been going for 16 months now, so it’s already beaten the average length!", DB Bank strategists led by Jim Reid wrote in a note.

"The lesson being that political risk in Italy is a perennial problem that the market regularly has to face even if the most likely outcome to any change of government is relatively sanguine in this instance," they added.

Renzi could decide in the coming hours on his next move and eyes are all on a press conference he and his ministers have called for this afternoon after the market closes.

(Danilo Masoni)



Europe's biggest retailer is on fire this morning, up over 10%, as traders rush in to take a piece of the sudden speculative action surrounding the stock.

While there's no guarantee a formal takeover offer for the French supermarket operator is on its way (Gallic economic patriotism is to be expected), the talks with Canadian convenience-store operator Alimentation Couche-Tard seem promising enough for some decent market price action.

Unsurprisingly, boosted by the M&A Carrefour news, the retail sector is the best performing one this morning, rising over 0.7%.

Although it's probably less front page material for most newspapers, Spain's Telefonica selling its mobile phone masts to American Towers for 7.7 billion euros is also moving the market today. Shares in the Spanish telco were up by over 10% at one point.

Similarly unsurprising, the telco sector is also among the top performers with a 0.6% gain.

Despite these two big M&A developments it's fair to say that the broader market isn't moving in any spectacular way.

The pan-European STOXX 600 is down about 0.1%, which is in line with what futures were pointing out just a few hours ago.

It must be said that European food ordering group Just Eat Takeaway falling over 4% despite a lockdown-fuelled spike in order was a bit of a downer.

The profit warning by offshore wind farm developer Orsted, down close to 10%, didn't help either.

(Julien Ponthus)



With Wall Street and Asian bourses ending their session just shy of record highs, one could be tempted to draw the conclusion that the so-called 'rational bubble' narrative lifting equity markets remains a consensus view among investors.

The belief that equity markets have nothing to fear but fear itself so long as the Fed and the ECB continue to provide massive monetary stimulus seems to capture pretty well the zeitgeist of January 2021.

But U.S. Treasury markets, where yields have jumped to their highest in 10 months, have fuelled reasonable doubts on the sustainability of the rally in a world plagued by a resurgent pandemic.

What if the genie of inflation suddenly gets out of the bottle What's the risk then of a policy mistake and central bankers jumping the gun on rate hikes and stimulus withdrawal

At the moment, the tapering discussion is a closely watched one and is yet balanced with hawkish comments from the likes of Fed officials Bostic and others such as James Bullard who argue it was too early to discuss tapering.

Bullard's comments, alongside Tuesday's well-received auction of 10-year Treasuries pushed 10-year Treasury yields down more than 5 bps off 10-month highs.

Against that backdrop, U.S. December inflation data will be closely watched today. Given the ongoing retail trading mania, inflated equity valuations and the Bitcoin frenzy, traders' thoughts could be turning to the early-2018 inflation scare that triggered a sharp sell-off and forced investors to reassess equity risk premia.

In the meantime, any pullback such as this morning's with flat European futures and stable to lower bond yields might be welcome.

Key developments that should provide more direction to markets on Tuesday:

-Canadian convenience-store operator Alimentation Couche-Tard initiates takeover talks with Europe's biggest retailer, Carrefour.

-St. Louis Fed President James Bullard speaks at a Reuters Next Virtual Forum at 1430 GMT.

-Italy's Matteo Renzi to hold press conference at 530 pm local time to decide on whether to topple the government by withdrawing his ministers.

-European food-ordering firm Just Eat Takeaway.com received 57% more orders in Q4 versus year-ago levels; British homebuilder Persimmon says forward sales up by a quarter; Supermarket Lidl saw UK Christmas sales up 17.9%

(Julien Ponthus)



Asian bourses have lost quite some steam in the last hour or so and seem set to end the session on modest gains only.

That's however very well in line with Wall Street's overnight performance when the S&P 500 gained a meagre 0.04%.

No surprises then to see that European futures are flat to slightly negative at the time of writing.

One interesting piece of news this morning with parts of the continent under lockdown will be the read-across from food-ordering firm Just Eat Takeaway.com announcing it received 57% more orders in the fourth quarter than a year earlier as consumers adjusted to the pandemic.

(Julien Ponthus)


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