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Good morning. Technology led a decline in stocks ahead of the U.S. jobs report and there’s news of a potential Spanish banking merger. Here’s what’s moving markets.
U.S. stocks tumbled as the rotation away from
super-charged technology shares picked up pace. The Nasdaq 100 lost more than 5%, its biggest fall since March, having gained in 11 of 13 sessions prior despite
cries of stretched valuations. The rout was even more brutal in the
options market. But while
charts were redrawn and the wealth of the industry’s billionaires was
slashed, tech shares remain sharply higher this year.
European futures are flat to slightly lower.
A Valencia-Barcelona tie-up is on the cards as Bankia SA and CaixaBank explore a potential merger. The Spanish firms are examining an all-share combination, but no deal has been reached, according to CaixaBank, while Bankia characterized the move as a “regular study of potential strategic operations.” A potential agreement would mark one of the largest deals yet by corporations based in a country that’s been struck hard by Covid-19 outbreaks.
The alleged poisoning of Russian opposition leader Alexey Navalny
could have implications for the energy industry. The head of the German parliament’s foreign affairs committee and the influential Bild newspaper say a new natural gas pipeline being built under the Baltic Sea
from Russia directly to the German coast, known as Nord Stream 2,
should be stopped following the incident. German Chancellor Angela Merkel is waiting for Russia’s response before deciding how to react.
It’s non-farm Friday. Today’s U.S. jobs report could deliver the last positive print before losses strike again, writes Eliza Winger of Bloomberg Economics, noting private-sector payrolls, as
reported by ADP, showed a much weaker-than-expected pace of hiring last month. The latest statistics suggest companies continue to hire at a more moderate pace than immediately following the lifting of business lockdowns months ago.
Here’s what to watch today.
U.S.-China relations remain on the radar, with President Xi Jinping
setting a combative tone in latest remarks. Elsewhere, we’ll get a reading of the U.K. construction purchasing managers index as well as German factory orders after data Thursday showed the euro area’s recovery
ran out of steam during the third quarter.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
And finally, here’s what Cormac Mullen is interested in this morning
Although sharp, the overnight selloff in U.S. equities can hardly have the bears shouting “I told you so” — the S&P 500 only fell back to where it was last week. But it will probably increase pressure on investors to prepare for an eventual value share rotation, and that could spell good news for European stocks, particularly those in Spain and Italy. That’s based on the size of the value stock cohort in each market, according to data compiled by Bloomberg from MSCI Inc. indexes. The market capitalization of value shares is just under 50% of the MSCI Europe Index versus just 45% of the U.S. benchmark and 44% of the emerging market one. Within Europe, it’s the countries along the Mediterranean that stand out. Value shares are 78% of the Italian benchmark and 69% of the Spanish, according to data compiled by Bloomberg. That’s because of the large size of the financials and utilities sectors in those markets. The equivalent figures for the U.K. and Germany are still high, with value shares making up about 63% of both MSCI country gauges. France, with a higher proportion of growth stocks, has the lowest percentage of value shares among the bigger European markets. Muted moves in haven assets suggests traders see little risk — for now — that Thursday’s tech weakness is anything more than some froth coming off an overheated market. But it’s good to know where the value lies, when the rotation does come.
Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo.
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