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Energy stocks under pressure after oil prices retreat
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Defence stocks rise in India's plan to triple exports
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Focus on U.S. inflation due on Tuesday
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WHO WILL BE BOJ'S VALENTINE? [1255 GMT]
The Bank of Japan is set to announce its new Governor on Valentine's Day, with markets
closely watching for hints on the policy stance of Kazuo Ueda who is expected to likely helm the
central bank.
The next governor is in for an "unprecedentedly difficult" job, according to economists at
UBS, of ending the current monetary easing without losing momentum towards economic growth amid
market turmoil, especially in government bonds.
Last week, two government officials said academic Ueda is likely to helm the Japanese
central bank, pushing investors to quickly snap up the yen and sell bonds on expectations he
will end years of super-easy monetary policy.
UBS economists in a note on Friday, however, said they continued to expect the dovish
Masayoshi Amamiya to succeed governor Kuroda.
According to the Nikkei who first reported on Ueda being BoJ's pick, Amamiya declined the top job when approached. Whoever the candidate will be, the new governor will face three key challenges, according to UBS:
1) How to set new policy mandate with the government, particularly how to define the 2%
inflation target
2) How to balance the risk of returning to deflation and achieving desirable higher
inflation
3) Restoring bond market function after an increase in bond purchases since December and an
increase in lending to banks through enhanced funds supplying operations in January left a jump
in the size of BoJ's bond holding and balance sheet.
(Bansari Mayur Kamdar)
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CONSUMER CONFIDENCE AND RISKS OF HAWKISH MISTAKES (1135 GMT)
What households in the euro zone will do with their so-called excess savings may be a key
factor for monetary policy, as consumer growth would boost the economy and probably inflation.
According to Erik F. Nielsen, UniCredit Economic Advisor, “there are still more downside
risks than upside risks to growth and to inflation over the next couple of years.”
He flags that “households are now sitting on huge amounts of ‘excess savings’, roughly 8% of
GDP, adding that “whether these will be turned into consumption, as argued by the optimists and
ECB hawks” cannot be taken for granted.
He acknowledges that there are no good statistics in Europe on which part of households
holds most of these savings. Still, U.S. numbers suggest they “are held primarily by the highest
income groups, which means that their potential for being converted into consumption is not
high.”
“If consumers, already in the hole in their real income, don’t feel confident, they’ll be
very unlikely to spend their excess savings and – more generally – unable to drive an economic
recovery,” he says in his Sunday Wrap.
With fiscal policy retrenching along with monetary policy, only exports can become the
driver of growth and “I feel pretty confident ruling out a sudden investment take-off,” he adds.
(Stefano Rebaudo)
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WILL WALLETS OF PETRODOLLARS OPEN UP FOR EMERGING MARKETS AGAIN? (0955 GMT)
Energy-financed investors might pour their recently build massive cash reserves into
emerging market equities driving a rally, adding further momentum to the China reopening trade,
Citigroup analysts say.
The brokerage says sovereign wealth funds have seen their coffers grow considerably as oil
rich countries reap benefits of robust oil prices allowing them to splurge in relatively 'cheap'
global financial assets.
"They will also use their riches to cement long-term economic and business relationships,
most notably with other emerging markets (EM)," says lead strategist Robert Buckland.
"This was key in driving the BRICs (Brazil, Russia, India, China) rally in 2007-08 and may
do the same again now, so pushing EM-related assets higher than fundamentals justify," he added.
(Roshan Abraham)
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EUROPEAN SHARES CRAWL HIGHER LIFTED BY DEFENCE SHARES (0910 GMT)
European stocks are crawling up with defence stocks providing support, but traders are
cautious ahead of Tuesday's U.S. inflation data that could give direction on the interest rate
trajectory of the world's biggest economy.
The STOXX 600 index is up 0.43%, and the FTSE 100 is up 0.25%. The STOXX 600 construction and materials and industrial goods indexes are among the front runners, each gaining almost 1%.
Shares in SAAB are up over 6% after its results on Friday alongside a broader upbeat mood in the defence sector after Reuters reported French planemaker Airbus signed an agreement with Tata's Air India for 250 jets. Thales, Airbus and Rheinmetall are all up 1-2.5%.
Rate-sensitive UK homebuilders such as Persimmon and Taylor Wimpey are at the
bottom of the FTSE 100, while the European real estate sector index shed 0.5%, the
biggest drag of the STOXX index this morning.
In terms of single stocks, Bawag shares fell 5% to the bottom of the STOXX 600
after the Austrian bank's Q4 net profit slightly missed consensus expectations.
(Joice Alves)
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IS IT A BIRD? (0758 GMT)
A flying octagon was the fourth object to be shot down over North America by a U.S. missile
in little more than a week. Officials declined to say whether it resembled the large white
Chinese balloon that was shot down earlier this month, though U.S. Air Force General Glen
VanHerck is not ruling out aliens.
Markets have kept an eye on the geopolitical mystery, but more focus is on whether U.S.
inflation is earthbound or stubbornly hovering.
Economists expect Tuesday data to show monthly rates ticked up in January, but the annual
measures declined.
Revised figures on Friday showed that inflation in December was a little stronger than originally reported, and a closely-watched consumer inflation expectations survey showed a notable spike in the short-term outlook.
All of which has kept pressure on stocks and bonds and put some support behind the U.S. dollar, since the data will set the tone for the Fed's next meeting in March. The Nasdaq has now only risen once in the last six sessions, the VIX volatility index hit a one-month high on Friday, and futures were shaky in Asia trade on Monday. Stocks also slipped, falling most in Japan where traders are still trying to come to grips with the likely appointment of academic Kazuo Ueda as the next central bank governor and whether it means an exit from super-easy policy. Macro data offered downbeat mood music, too. Fourth-quarter growth in bellwether Singapore was unexpectedly revised lower. Seasonally adjusted South Korean exports fell. Key developments that could influence markets on Monday: - Fed's Bowman speaks - ECB's Lagarde participates in Eurogroup meeting
(Tom Westbrook)
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EUROPEAN SHARES SEEN LITTLE CHANGED AHEAD OF TUESDAY'S U.S. INFLATION DATA (0745 GMT)
European stocks are likely to open little changed ahead of U.S. inflation data due Tuesday
that could jolt the outlook for interest rates globally.
The near-term direction for markets could be impacted by U.S. data on consumer prices and
retail sales this week, with much resting on whether inflation continued to slow in January.
Median forecasts are for headline and core consumer prices to rise 0.4% for the month, with
sales rebounding by 1.6%.
EUROSTOXX 50 futures and FTSE futures are about flat.
An air of geopolitical mystery was supported by news the U.S air force had shot down an
airborne object near the Canadian border, the fourth object downed this month.
(Joice Alves)
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