Off The Wire
LIVE MARKETS-Winter is coming... and so are earnings downgrades
STOXX 600 falls 0.5%
U.S. banks warn of recession
GSK surges after Zantac lawsuits dismissed
U.S. stock futures slip
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WINTER IS COMING... AND SO ARE EARNINGS DOWNGRADES (1143 GMT)
Downgrades to European earnings estimates are picking up, as the regional economy buckles
under the weight of red-hot inflation and tighter credit conditions. BofA Global Research's
quant team said their three-month European EPS revision ratio fell deeper into what they called
"downgrade territory" to 0.82 from 0.99.
The three European stocks with the most negative breadth of EPS revisions were German
chemicals maker Covestro , Dutch paints and coatings manufacturer Akzo Nobel and German sportswear company Adidas , the team, led by Paulina Strzelinska, said. The
three with the most positive breadth of revisions were Dublin-based aviation leasing company
Aercap , Swedish lender SEB and Spanish bank BBVA .
Europe-focused equity funds have recorded a record-breaking 42nd consecutive week of
outflows this year ($0.88bn), with a net -21.8% seeing net inflows, the bank said.
***** BEING BEARISH BUT ALSO BULLISH ON EUROPE INC (1116 GMT) Jefferies goes straight to point to highlight how different each European country equity market is, which in turns means the dispersion of returns in the region is going to vary widely. "One size doesn't fit all," says Sean Darby, one of the bank's global equity strategists. Darby and team in fact are bullish on countries like France and the UK, modestly bullish on Germany, while at the same time, they're bearish on Poland and modestly so for Italy. "European bourses are far from homogenous, so the dispersion of equity returns in 2023 will be quite wide," they say. Bringing all together though, they see gains for the Euro STOXX betting that lead indicators will bottom out in the first half of 2023, followed by earnings revisions with a 3-month lag. "There is room for the index to climb by ~12% as interest rates are likely to peak in 1Q23. This would leave the index trading on 480," they write.
EUROPEANS JUST LOVE GOOGLE (1039 GMT) Growth stocks have been all the rage over the past few years, at least until late 2020, when it became apparent that the world economy was recovering and inflation was - at least at that point - ticking up at a comfortable pace. But once rates started rising and inflation began to rip higher, value stocks, which are more closely linked to the underlying economy, reemerged as a top pick. This year, European value stocks , which include the likes of energy, natural resources and autos, have gained 1.7%, compared with a drop of nearly 14% in growth stocks and an 11% fall in the broader STOXX .
In terms of what would-be European investors are interested in, the answer is clear,
according to data from retail investing company CMC Markets. "Google" is the most searched-for
growth stock in the region, topping the charts in 27 countries, with Meta's "Facebook" a close
second, coming out on top in 20 countries. The number of searches varies depending on the
population. Germany is the country with the highest number of searches a month and "Google" is
the most popular, with 149,000 searches. The Netherlands is second, with 115,000 searches.
Ukraine is the country with the most searches for "Facebook", with 107,000 searches a month,
followed by the UK and France, with 87,000 and 86,000 searches, respectively.
"Google and Facebook are dominating as the most popular growth stocks across Europe. Both of
these companies have a huge influence on the market, and the media, which is why many Europeans
are looking to invest in them," Michael Hewson, chief market analyst at CMC Markets said.
***** FORZA ITALIA IN EARLY EUROPE (0915 GMT) Italy may not have made it to the soccer World Cup, but Milan blue-chips are leading the way this morning, as European equities trade in a sea of red so far. The FTSE MIB is up 0.6%, by far the best performing index in the region, compared with a 0.1% loss in the broader STOXX 600 index, and well beyond Stockholm's 0.5% loss . Utility company ENEL is leading its sector higher and is up 1.5%, making it one of the biggest positive weights on the STOXX and lender UniCredit is up 1.8%. But today belongs to the pharma and biotech sector, which is the standout gainer, up 1% thanks to a surge in shares of UK drugmaker GSK following a U.S. ruling that dismissed thousands of lawsuits claiming that over-the-counter heartburn medication Zantac causes cancer. The stock rose as much as 15% earlier on and, with a 10% gain, is on track for its largest one-day rise since 1998. French rival Sanofi , which is also part of the suit, is up 5.7%. All the drugmakers involved denied Zantac caused cancer. (Amanda Cooper)
HAT-TRICK (0755 GMT) While European shares ended lower for the third straight session on Tuesday, spooked by recession worries, another hat-trick dominated the World Cup a few hours later. Three goals by Portugal's 21-year-old Goncalo Ramos against Spain in his first World Cup sent his side through to the quarter-finals for the first time in 16 years. And a 3-0 shootout win by Morocco against former champions Spain meant that Morocco became the first Arab nation ever to qualify for the tournament's quarter-finals. In the arena of European stocks, there seem to be little excitement for risky assets on Wednesday, with Asian equities trading rangebound after U.S. stocks again suffered losses as markets gradually factor in sharper interest rates hikes. For the euro zone, commentary by officials is hinting at a peak in rates but anaemic growth and stubbornly high inflation are haunting investors. ECB policymaker Constantinos Herodotou said on Tuesday that interest rates will go up again but are now "very near" their neutral level. Markets will focus on industrial output data due from Germany, while euro zone third-quarter GDP and employment numbers, and UK house prices are among the other economic indicators for the day. Euro zone government bond yields dropped for the first time in three days on Tuesday in the run-up to a raft of major central bank decisions next week. A Reuters poll of market strategists expect the dollar to rebound against most currencies over the coming months, with the growing threat of recession in the U.S. and elsewhere keeping it firm in 2023 through safe-haven flows. On Tuesday, top bankers from JPMorgan Chase & Co , Bank of America and Goldman Sachs warned of a recession next year, as inflation threatens consumer demand. On the corporate front, Airbus gave up a numerical forecast for jet deliveries and a date for its key production goal but retained its financial targets as it limped towards the end of a year battered by disruptions in factories and supply chains. And British Prime Minister Rishi Sunak's government said it would ease restrictions on building onshore wind farms, heading off a revolt by his party's lawmakers who had demanded they should be permitted with local support.
Key developments that could influence markets on Wednesday:
Economic data: Germany Oct industrial production, Euro zone Q3 GDP, employment (final), UK
Nov Halifax house prices
Speakers: ECB's Philip Lane, Elizabeth McCaul and Fabio Panetta
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