RPT-MORNING BID-Bulls-bears continue tug of war

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LONDON, July 6 – Citi analysts sum up the situation on markets with their comment that bullish and bearish forces might cancel each other out, leaving global equities more or less at current levels in 12 months time.

The bearish forces? One number doing the rounds is that re-openings affecting 40% of the U.S. population have now been wound back. Fifteen states reported record increases in new COVID-19 cases, which has now infected nearly 3 million Americans, according to Reuters.

That’s a poor prognosis for the U.S. economy and companies. BofA said on Friday $7.1 billion was pulled out of equity funds over the past week, and its Bull & Bear indicator was out of “buy” territory for the first time since March And Citi says bottom-up earnings-per-share consensus for end-2021 is 30% too high.

As for the bulls, markets are still trading on June glories, especially record U.S. jobs numbers. Second, China and Europe appear to have escaped further Covid surges, so restrictions will be unwound further. German factory orders rebounded 10.4% in May from the previous month’s record slump. Service PMIs were generally revised higher on Friday from flash estimates.

Plus, central banks are still in the game — Citi reckons they will buy another $6 trillion in assets in the coming year.

So today world stocks have marched to four-month highs, Chinese equities are at five-year peaks and European markets are higher. Emerging-market equities have raced to a fifth straight session of gains and U.S. futures are up almost 2%.

But yields on U.S. and German bonds are a touch higher and gold has slipped. Japanese bonds are interesting – yields overall are lower today but 20- to 40-year borrowing costs have risen to their highest since March 2019, having climbed since mid-June after the BOJ appeared unconcerned.

As a reminder, the BOJ anchors yields on tenors up to 10 years so a steeper bond curve is what it intended with its yield-curve-control policy (YCC). So will it let yields keep rising with an economy in recession? The Fed, which recently seemed to quash the idea of adopting YCC in September, might be keeping an eye.

In Europe, Commerzbank top brass stepped down on Friday, Lloyds Bank announced CEO Antonio Horta will step down in 2021, appointing Robin Budenberg as the new chairman. At insurer Aviva, CEO Maurice Tulloch is stepping down and will be replaced by Amanda Blanc. Also, Commerzbank was fined 650,000 euros for deals with defunct Cypriot bank.

Elsewhere, pandemic struggles continue. Swiss plumbing supplies company Geberit’s quarterly sales dropped 15.9%. Air France and HOP! airlines plan to cut 7,580 jobs. Britain’s Tesco is demanding supplier price cuts. Siemens sees up to a 20% drop in business in the April-June quarter.

Meantime, Britain is close to a 500 million-pound supply deal with Sanofi and GlaxoSmithKline for 60 million doses of a potential COVID-19 vaccine, the Sunday Times reported.

Banking group Nordea is to acquire some pension portfolios from Frende Livsforsikring. Volkswagen is investing 1 billion euros to retool its factory in Emden, Handelsblatt reported. Berkshire Hathaway is buying Dominion’s gas assets for $4 billion and Uber has agreed to buy food-delivery app Postmates Inc in a $2.65 billion all-stock agreement, Bloomberg News reported.

Emerging markets are getting no relief from Covid, with India now with the third highest number of coronavirus cases, Mexico overtaking France and Peru taking the No. 2 spot after Brazil in Latin America.

Argentina has announced a new debt-restructuring proposal.

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