At 3%, yields feel like game changer in European equity

LONDON: Euro Stoxx 50 futures are little changed, following a mixed US session. After a market holiday on Monday, Chinese equities are retreating as the world’s two biggest economies are testing the market’s resilience sticking to escalation in their trade war. The dollar ticks higher while the 10-year Treasury yield consolidates above 3%.

With yields on the rise again, the attitude toward dividends among investors is changing as the market no longer lacks high-yielding instruments. This is particularly bad news for European equities, where the dividend yield is almost double that of US peers.

On the merger and acquisition menu today: European food delivery is back in focus with Amazon said to be in early stage talks with Deliveroo over a possible acquisition, competing with Uber approach last Friday. Watch Just Eat, Delivery Hero and Takeaway.com.

On the macro side, Europe is waiting on Italy to finally release its budget, and so far, the coalition has been sending mixed messages. La Stampa reported the government is heading for a compromise deficit of 1.9%, which should reassure investors. But it’s the difficult outlook beyond it that is worrying Goldman Sachs strategists. They say the budget should result in only a limited and temporary fall in Italian bond yields.

Elsewhere, oil futures are holding gains as traders anticipate a further rise following Opec resistance to President Donald Trump’s call to increase production, while gold still holds firm near US$1,200. Most metals are falling in excess of 1%, lead by copper.

This will likely impact miners, even if Morgan Stanley tries to give the sector a push. The fact is miners are still trading near a five-year low valuation level and are kings in shareholders returns, Glencore being the latest miner to boost buybacks.

Finally, Europe is missing yet another market buzz: pot stocks. Pot is hot in the Great White North and so frenzied that fears of a bubble are rippling through the industry. There is a huge medicinal-only opportunity for now according to Canaccord, with UK-listed cannabis sector set to accelerate sharply in the next 12 months. — Bloomberg