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STOXX 600 down 1%
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Rate hikes this week in focus
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UniCredit rallies after record profit
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U.S. stock futures inch lower
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BANKS: SIX REASONS TO BE OVERWEIGHT (1126 GMT) Rate-hike angst seems to be a weight across the board this morning, but not so much for banks, which have surged to a fresh 11-month high.
Record profit at Italy's UniCredit is another reminder of how the industry could benefit further as policymakers crack on with rate hikes, turning the page on years of ultra-loose policy that hit bank margins heavily. To be clear, the sector has benefited already from last year's tightening measures but prospects of more rate hikes along with the economy's improving outlook are adding optimism. "We started the year Market Weight on European Banks, but see much better prospects for the sector in 2023," Barclays strategists led by Emmanuel Cau said in a note this week. "Arguably, markets are moving fast these days and it feels like 'easy gains' are behind us after such a fast rally ytd. A breather is always possible, yet we think it makes sense to be Overweight the sector at this juncture," they added. Their upbeat case for banks is based on six pillars.
1) EU deep recession risk is receding
2) ECB and BOE rates to stay higher for longer 3) Healthy balance sheets can manage some credit risk 4) EPS momentum is strongly positive
5) Valuations remain depressed
6) Positioning is more positive now, but not crowded
(Danilo Masoni)
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STOXX SLIDES (0910 GMT)
A surprise plunge in German retail sales and angst over
another round of likely rate hikes this week combined to push
the STOXX 600 below parity in early trading today,
offsetting good news from France where the economy managed to
escape negative growth in the last quarter of last year.
The pan-European index was last down 0.5%. Healthcare and
materials were the biggest drags and almost all sectors traded
in the red. Banks , whose margins tend to benefit from
higher rates, were an exception, with record numbers from
Italy's UniCredit pushing the sector index to a new
11-month high.
Here's your opening snapshot:
(Danilo Masoni)
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EUROPEAN SHARES SEEN LOWER (0730 GMT)
European shares were set to open lower on Tuesday ahead of
preliminary GDP readings, which investors will be watching
closely to assess how the region's economy is going just as the
European Central Bank prepares to raise rates again this week.
EuroSTOXX50 futures fell 0.3% following losses in
Asia, where angst over upcoming central bank decisions,
including also from the Federal Reserve, weighed after a strong
start of the year. U.S. futures were broadly unchanged.
It's also a big week for earnings. Swiss bank UBS beat estimates in its latest quarter, but predicted an
"uncertain" year ahead, plagued by accelerating inflation and
higher rates. Its shares were seen rising slightly.
In Asia, Samsung Electronics indicated it did
not plan to cut investment in chips, even after the South Korean
group posted its smallest quarterly profit in eight years.
Later on in the U.S., Exxon Mobil is the first of
the oil majors to report, while drugmaker Pfizer and
automotive group GM also release quarterly numbers.
(Danilo Masoni)
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MIND THE GAP (0656 GMT)
An impressive 6% rally in global stocks this month, the first gain in January after three years, has got
investors all excited after a dismal 2022.
Fundamentally, prospects for the world economy are not as
bad as feared just a few months ago, prompting the International
Monetary Fund to raise its 2023 global growth outlook slightly.
The IMF cited "surprisingly resilient" demand in the United
States and Europe, easing of energy costs and the reopening of
China's economy.
Still, it would be wise for investors to be mindful of a gap
between expectations and reality.
On Monday, hotter-than-expected inflation data from Spain
and an unexpected decline in the German economy in the fourth
quarter created uneasiness for stock bulls, dragging down
European shares.
Asian equities fell 1% on Tuesday and the dollar was eyeing
a fourth monthly loss as investors reckon a peak in U.S.
interest rates could swing into view as soon as this week's
Federal Reserve meeting.
Flash GDP numbers are due from the euro zone, along with
growth data for France and Italy. The numbers are likely to be
keenly watched for signs on how weary economies are faring.
The ECB is all but certain to raise rates by half a
percentage point on Thursday but fresh inflation data is still
crucial for the central bank's policy guidance for subsequent
meetings.
The Bank of England is set to raise rates by 50 bps to 4.0%,
respectively. Headline inflation moderated in December to 10.5%,
but it's still over five times its official target.
Money market bets show that the U.S. Federal Reserve is set
to raise its policy rate by 25 basis points to 4.50%-4.75% on
Wednesday.
Adding to pressure on British finance minister Jeremy Hunt
to come up with a growth plan, the country became the only Group
of Seven nation to suffer a cut to its 2023 economic growth
outlook in IMF forecasts published on Tuesday.
Britain's flagging economy now appears set to shrink by 0.6%
this year, a sharp downgrade from previously expected growth of
0.3% in the IMF's last forecast in October.
Meanwhile, a U.S. federal appeals court ruled on Monday that
drug manufacturers can limit healthcare providers' use of
outside pharmacies for dispensing drugs under a federal drug
discount programme, marking a victory for Sanofi , Novo
Nordisk and AstraZeneca .
Finally, there's good news for tech staff. With thousands of
layoffs taking place in Silicon Valley, some German companies,
faced with a tight labour market and a shortage of workers with
key software engineering skills, are seizing on the West Coast's
woes as an opportunity to recruit top talent.
Key developments that could influence markets on Tuesday:
Economic data: Euro zone Q4 flash GDP; France Q4 GDP, Jan
CPI flash; Germany Dec import prices, retail sales, flash CPI;
Italy preliminary Q4 GDP
Speakers: Swedish central bank governor Erik Thedeen
participates in an open hearing on financial stability in the
Swedish economy in Stockholm
European results: UBS, Swedbank
U.S. economic data: Q4 employment wages, Q4 Nov house prices
U.S. Federal Reserve begins two-day meeting
U.S. results: Exxon Mobil, Caterpillar, General Motors,
Pfizer, McDonald's, UPS
(Anshuman Daga)
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