STOXX falls for a fifth day

STOXX DIPS, CHINA OPTIMISM NOT ENOUGH (0909 GMT)

China-exposed stocks from miners (.SXPP) to luxury and top FTSE gainer Prudential are seeing some demand this morning as traders play the reopening theme after reports of more easing of COVID-19 curbs in the world's No.2 economy.

Oil stocks (.SXEP) are up too, mildly, as the overall tone looks quite muted. Losses across most other sectors are more than offsetting the China-related optimism, sending the STOXX 600 SXXP regional benchmark falling 0.2% in early deals. The index is on track for a fifth straight day of declines, its longest losing streak in two months.

Lingering worries over an impending recession are clearly there behind the sombre mood. A warning over rising finance costs meanwhile hit BAT, even as the cigarette maker stuck to its guidance. The highly leveraged real estate sector (.SX86P) was off to a positive start but the move faded quickly .

Here's your opening snapshot:

(Danilo Masoni)

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EUROPE EYES TENTATIVE GAINS (0745 GMT)

European shares look set to open a touch higher this morning as investors assess risks related to a worsening macro outlook that has squeezed bond yields, tempered by expectations of a gradual reopening of China's economy.

EuroSTOXX50 FESX1!, DAX DAX1! and FTSE Z1! futures were last trading up 0.1-0.2% following gains in Asia on optimism over an easing of COVID restrictions in the world's No.2 economy. U.S. futures moved just above parity.

A number of share placements in Europe should liven up the session with traders betting on a rocky start for Vallourec, Vicore Pharma, Carmat and Nordic Unmanned after brokers launched share sales. Earnings releases are also on the menu.

An upbeat outlook look set drive UK packaging company DS Smith higher, and also the update from housing maintenance services provider Mears should be well received.

Eyes also on British American Tobacco, which forecast FY -year revenue growth of 2-4% as more people are using its e-cigarettes and oral nicotine products.

ASML is also in the spotlight after Bloomberg News reported Dutch officials are planning to enforce new controls on exports of chip-making equipment to China.

(Danilo Masoni)

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SO WHAT'S UP WITH TREASURIES? (0712 GMT)

Asking for a friend.

Because it is not often 10-year yields suddenly drop 11 basis points, break a chart big barrier and hit three-month lows for no discernible reason.

Some point a finger at the downward revision to Q3 U.S. labour costs. But Q3 is ancient history and only GDP nerds understand labour cost indices.

Yes, China trade data were truly awful, but both U.S November payrolls and the services ISM surprised on the high side and should be more meaningful for Treasuries.

True, the Bank of Canada did manage to be both hawkish and dovish by hiking 50bp but flagging it might be near done tightening. But the Fed is still going to hike 50bp next week and most analysts expect a higher set of FOMC dot plots for rates in part as a protest against recent financial market easing.

And what an easing it's been. Since the Fed hiked 75bp in November, 10-year yields have fallen 90bps to be 37 basis points under the cash rate, while 10-year fixed mortgage rates have dropped to 6.07% from 6.67%.

Of course, Fed Chair Powell caused much of this, given he had the perfect chance last week to push back hard against the easing and didn't - and it's still not clear why.

Maybe the sudden groundswell of recession fears has central bankers spooked. Treasuries are not innocent bystanders here, since the more inverted the curve becomes the more those fears seem justified.

There used to be a saying that the Treasury curve foretold five of the last two recessions, but these days nobody seems to doubt its pain-predicting powers. So long-term yields are tumbling because of recession fears caused by that very tumble?

Friend really wants to know.

Key developments that could influence markets on Thursday:

- China's health authorities will hold a press conference on COVID-19 prevention and control measures at 3 p.m. local time (0700 GMT).

- U.S. weekly jobless claims expected to rise back to 230,000, but tend to be volatile this time of year.

- Appearances by assorted central bankers from the ECB, Riksbank and Bank of Canada.

(Wayne Cole)

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