News: RIO LIVE MARKETS-Making small caps great again!

• European shares turn positive
• Takeover approach boosts Morrisons
• U.S. stock futures extend gains

June 21 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at [email protected]

MAKING SMALL CAPS GREAT AGAIN! (0959 GMT) Coverage of the small and midcap space has plunged in recent years in many European markets, since MIFID II rules forced brokers to charge buy side clients separately for coverage, rather than bundling the research up with other products.

Britain’s Financial Conduct Authority and France’s AMF have both said they are looking into the impact on the market of the rules changes, amid dwindling coverage of small caps.

But in the meantime, Investec believes there is a gap in the market and that the time is ripe for the comeback of an often unloved sector.

Manager of the new Investec Brief product, Nathan Piper, told Reuters the bank has launched research on 50 stocks with an average market cap of 250 million pounds ($346.00 million), covering sectors including tech and financials.

His Edinburgh-based team make the economics work by cutting out the time-consuming process of producing traditional forecasts and Buy/Sell recommendations, instead focusing on data to screen for stocks that stand out on one or more metric.

Will buy side clients bite? Piper thinks so, the team recently hired a third analyst and will aim to expand its coverage universe to 100 over the next year, he said.

(Lawrence White)

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	DEFLATING COMMODITIES (0948 GMT) 

It's been an exceptionally strong year for commodities so far but signs have emerged that investors are starting to feel uncomfortable about holding on to their positions in a trade that's now the most crowded one in global markets.

The latest example of cracks appearing in the commodities space is the price drop today in Rio Tinto RIO.L shares, which has fallen over 3% to the bottom of the STOXX 50 after a downgrade to sell from UBS mainly because of macro headwinds.

"Near-term risks for the commodity complex are increasing with the Fed turning more hawkish & China taking action to deflate commodities (eg by selling strategic base metal reserves," say analysts at the Swiss investment bank.

"We expect this to accelerate the unwinding of the 'reflation trade'," they add in a note.

Earlier this month BofA data showed commodities were the top returning asset class for first time since 2002, up 72% YTD, and in June they overtook bitcoin as the most crowded trade.

In this chart you can see how Europe's Basic Resources index .SXPP has come under pressure recently after climbing to an 8-year high in May relative to the broader market .STOXX .

(Danilo Masoni)

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	WHAT IF A HAWKISH FED PUSHES YIELDS FURTHER DOWN?(0903 GMT) 

After last week's hawkish Federal Reserve policy meeting, something unusual has been happening, namely, the drop in long-end yields, including the 10-year maturity.

Some analysts say the Fed statements pushed up two-year and five-year yields, which are the most sensitive to rate changes, while investors are unwinding trades that were betting on higher inflation.

But there are different views, with George Saravelos, head of forex research at Deutsche Bank, saying that Fed hawkishness might lead "to even lower long rates."

According to Saravelos, the real neutral rate or r*, which boils down to the balance of excess savings overconsumption, is currently extremely low, and that is why long-end bond yields haven't been rising after the Fed.

The critical question is what households will do after the pandemic as they might have turned more risk-averse and keep all the cash hoarded in deposits or other investments "… pushing r* further down."

"If that is the case, Fed hawkishness will counterintuitively lead to even lower long rates, just as we have witnessed in recent days," Saravelos says.

"In the UK and Israel, despite most activity being open, spending has flatlined after the initial surge rather than accelerating," he adds.

(Stefano Rebaudo)

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	REFLATION TRADE ON HOLD (0733 GMT) 

It doesn't seem such a painful move as of now, with Europe's Stoxx 600 .STOXX down 0.5% and the U.S. stock futures mixed around Friday's levels after dropping earlier this morning.

Some analysts flag that Friday's fall on Wall Street was coupled with "quadruple witching day," the quarterly simultaneous expiration of U.S. options and futures contracts, an event that usually increases volatility.

But reflation trade is losing momentum as a risk-off mood is spreading ahead of more Federal Reserve speakers due this week, after Fed's James Bullard talking about stronger than expected inflation spooked markets on Friday.

Basic materials stock index .SXPP is the worst performer, down 1.7% after the Fed triggered a sharp correction in commodity prices.

Bank stock index .SX7P is down 1.1% after the U.S. yield curve saw the largest one-week flattening in nearly ten years.

Shares in Morrisson MRW.L are up 33% after on hopes private equity firm Clayton, Dubilier & Rice (CD&R) might raise its proposed offer for the British supermarket group or flush out interest from other possible suitors.

Its peers Sainsbury SBRY.L and Tesco TSCO.L are also among the Stoxx 600 best performers.

(Stefano Rebaudo)

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	MYSTERIOUS WAYS (0714 GMT) 

Bond investors could be forgiven for humming U2's signature tune after the strange moves in the U.S. Treasury yield curve in the wake of the Federal Reserve catching markets off guard last week by anticipating rate hikes as early as 2023.

Consider this: 2-year U.S. Treasury yields are near 16-month highs while 30-year debt yields are near 2021 lows. The 5 year-30 year yield curve saw the largest one-week flattening in nearly ten years, says Deutsche Bank. It is unnatural for U.S. long-end yields to decline and the curve to flatten after a hawkish Fed meeting before a hiking cycle has even begun.

Whether the U.S. bond market moves signal a weaker-than-expected global economic recovery or too much hawkishness being priced in at the front end of the curve, markets are clearly in risk-off mode.

U.S. and European stock futures are in the red after a weak Wall Street close while safe-haven currencies including the Japanese yen are in demand.

There is plenty of food of thought for investors this week with a swathe of flash business surveys from the world’s major economies on Wednesday offering more clues into whether the economic recovery is proving as strong and rapid in June as it did in previous months.

Several Fed officials speak this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. Investors will watch if the Bank of England becomes the latest central bank to signal further steps on the path to tapering pandemic-era stimulus after the Federal Reserve’s hawkish tilt last week.

Bitcoin was nursing overnight losses while the Australian dollar fell to seven-month lows driven by a steep drop in iron ore prices. Inflationary signals were mixed from the commodities markets with copper nursing losses while oil climbed above $72 a barrel.

In corporate news, Billionaire investor William Ackman's Pershing Square Tontine Holdings signed a deal to buy 10% of Universal Music Group (UMG), Taylor Swift's label for about $4 billion while Goldman launched its transaction bank in Britain. Key developments that should provide more direction to markets on Monday: Copper prices at two-month lows after near 9% drop last week ECB’s Lagarde speaks to women political leaders’ summit Fed speaker corner: Bullard, Kaplan Emerging markets: U.S. National Security Advisor Jake Sullivan says Washington readying another package of sanctions against Russia

(Saikat Chatterjee)

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	EUROPE IN THE RED AFTER HAWKISH FED (0528 GMT) 

The European stock futures fell as Wall Street and Asian stock markets showed a significant adverse reaction to last week's Federal Reserve sudden hawkish turn.

Investors brace themselves ahead of Fed speakers due this week after St. Louis Fed President James Bullard spooked markets on Friday by saying a faster tightening of monetary policy is a "natural" response to economic growth and quicker inflation.

A correction of equities doesn't come as a surprise after their strong run for such an extended period, with analysts flagging that, as of now, market action is not disorderly.

(Stefano Rebaudo)

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US yield curve	https://tmsnrt.rs/3cSnlA3 

snapshot1 https://tmsnrt.rs/3cXmOwx USyields https://tmsnrt.rs/3xHiQAl BR stocks https://tmsnrt.rs/3iWu8MN

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