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STOXX 600 down 0.5%
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Tech leads losses
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Markets nervy as rate hikes loom
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U.S. stock futures fall
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WATCH THOSE FLOWS (1300 GMT) The best start of the year for European equities since 1987 hasn't only been a matter a performance.
The region also saw the first net equity inflows after 48 weeks of bleeding and investors are now a touch overweight the region. Yet, it looks like it's too early to uncork the champagne. "Two weeks of positive inflows does not make a trend and $3.6bn is only a tiny redemption of the $120bn we saw flow out of European equity funds over the last year," writes Bernstein. That said, Bernstein says flows in the coming weeks deserve a careful watch to determine whether this is "indeed an emerging trend" - away from U.S. stocks towards the rest of the world. Europe saw $3.4 billion of equity inflows in the week to Jan. 25 - the largest since February 2022, according to the latest EPFR Global data released by BofA.
(Danilo Masoni)
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CHINESE GROWTH, U.S. SLOWDOWN MEANS IT'S TIME TO SHUFFLE
(1233 GMT)
Economic growth slowing in the United States and accelerating in China should lead investors to shuffle their European equities pack, UBS analysts said on Monday.
They flagged the materials sector as a likely beneficiary and pharmaceuticals as a probable casualty. Economists expect last week's better-than-expected fourth quarter U.S. GDP data to be the last quarter of solid growth before the lagged effects of the Federal Reserve's monetary policy tightening are fully felt.
In contrast, China's economic growth is likely to rebound to 4.9% in 2023, a recent Reuters poll showed.
Logically enough, UBS says the consequences should be "that investors seek European companies that have Chinese exposure and avoid European companies that have US exposure."
Slowing U.S. growth and rising interest rates in Europe should also cause the euro to appreciate, a further headwind for companies that report their earnings in euros but have a heavy U.S. exposure.
UBS say pharma is among the sectors most sensitive to weakness in the U.S. and a strong euro, while, as consumption-focused stocks have already responded to China's reopening, "energy would be the best next catch-up sector although not quite yet."
U.S.-exposed stocks outperformed China-ocused ones last year, reversing a trend in late 2020 and 2021, according to the investment bank.
(Alun John )
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THE UNBEARABLE WEIGHT OF EU SPENDING PLANS (1041 GMT)
The 27-nation European Union is still far from deciding on
permanent joint borrowing to finance a response to the energy
crisis and upgrade the military.
According to one advocate of joint issuance, this might be
the only choice the bloc has.
"Adding up just these three key areas (energy, defence and
education) of urgent additional priorities foresees an
additional demand on the public budget of some 2.5% of GDP each
year" for the "next ten years or so," says Erik F. Nielsen,
group chief economic advisor at Unicredit.
"National budgets may have some fiscal space available if
the fiscal rules were properly adjusted, but not nearly enough
for the needs," he says.
Expenditure cuts due to efficiency gains are possible, but
assuming anything remotely near a 2.5% GDP fiscal program is
unrealistic. Additional revenues are problematic, with euro-area
countries collecting around 47% of GDP versus 35% of other
advanced economies.
"Additional borrowing will surely be needed, partly to fill
the gap between the need and what may eventually be raised in
additional taxes, partly as a bridge to the time when such tax
efforts can be implemented," he adds.
So, a realistic answer is a "treaty change and a permanent
euro zone programme of common issuance for common goods, linked
with the necessary democratic underwriting," Nielsen says.
(Stefano Rebaudo)
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TECH NAMES DRAG ON STOXX 600 (0940 GMT)
European shares are off to a weak start as traders digest a
flurry of corporate announcements and gear up for interest rates
hikes later this week.
The STOXX 600 is down 0.7%. Tech names are the biggest sectoral losers, down 2.5%.
Shares in Prosus are down 6%, with the tech investor languishing at the bottom of the STOXX 600. Meanwhile maker of equipment to produce semiconductors ASML holdings - and Europe's biggest tech company - is the largest drag on the index on a net weighted points basis, with shares down 2.9%.
Luxury names LVMH and Richemont are also weighing down the index, falling 1.6% and 1.1% respectively.
On a positive note, robust numbers from UK IT services
company Computacenter are pushing shares up 8.5% to the
top of the index. Dutch health technology company Philips is not far behind, up 6.8% after better than expected
fourth-quarter earnings.
(Lucy Raitano)
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EUROPEAN SHARES SEEN FALLING AHEAD OF PACKED WEEK (0735 GMT)
European shares look set to fall at the open as a busy week
of corporate earnings and central bank meetings kicks off.
EuroSTOXX50 index futures down around 0.6%. FTSE futures are on a similar trajectory while German DAX futures are faring slightly better, down 0.36%.
Traders are gearing up for the first major central bank meetings of 2023, with hikes on the horizon from the Federal Reserve, the European Central Bank and the Bank of England this week.
A flurry of earnings and corporate announcements will set the tone this morning.
Shares in Philips are expected to lift after the Dutch health technology company said Q4 revenue beat estimates and that it would scrap 6,000 jobs to restore profitability.
Nissan Motor Co and Renault SA announced a sweeping restructure of their two-decade-old automaking alliance that will put them on equal footing and see the Japanese company invest in Renault's new electric vehicle business. Shares in UK consumer goods giant Unilever are expected to rise after the company said it has appointed a new CEO, while budget airline Ryanair on Monday posted its largest after-tax profit for the October-December quarter.
The drama is still unfolding at India's Adani Group, which
on Sunday issued a detailed rebuttal to a Hindenburg Research
report that has seen $66 billion wiped off the value of its
shares in three days. The company said it complies with all
local laws and had made the necessary regulatory disclosures.
(Lucy Raitano)
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BREATHE IN (0707 GMT)
Markets are holding their breath for a week where central banks may start to take divergent paths. Chinese markets have returned from the Lunar New Year break with a bit of a whimper rather than a bang and the wind filling the sails of a wider positive mood has backed off while rate decisions in the U.S., Europe and the UK beckon. Right now, investors' glasses remain half full, with traders pricing in a 25 basis point hike from the Federal Reserve and hoping to hear talk of a peak in rates from Jerome Powell. Wall Street's "fear index" - the VIX volatility index - on Friday fell below 18.0 for the first time in over a year, and perhaps a little under the radar, U.S. bond market volatility is now its lowest since last June. But cagey trade on Monday illuminates the nerves. Tech earnings loom as a mood test in the United States this week.
The European Central Bank, appears to be eying a 50 bp hike, too, which is helping keep the euro near nine-month highs, while the Bank of England is also expected to go 50 bps. In Asia, markets slipped slightly, U.S. futures fell 0.4% and currency trade was eerily calm. The Nikkei newspaper reported Renault was to lower its share holding in Nissan to 15%, while the latter would invest in Renault's EV business. Shares in India's Adani Enterprises climbed 6% on Monday, but several other Adani group companies plunged for the third straight day as the group fends off criticism from a U.S. short-seller. Things have not gone well for investors in other firms Hindenburg has targeted. Key developments that could influence markets on Monday: - Germany GDP (Q4) - Euro zone sentiment indicators (January)
(Tom Westbrook)
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