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STOXX 600 up 0.3%
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Recession fears lessen
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Rate outlook in focus
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U.S. futures down slightly
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THE CASE FOR INSURANCE-LINKED SECURITIES (1304 GMT)
Investors facing sky-high inflation, rate hikes and the surging cost of capital, would be wise to scout out alternative destinations for their cash beyond equities and bonds.
In a recent note, AXA Investment Managers make the case for insurance-linked securities (ILS) as an interest rate and inflation hedge amid the volatility facing traditional markets.
ILS are esoteric structured finance instruments that insurers and reinsurers use to offset hurricane and other insurance risk.
Francois Divet, Head of ILS at AXA IM Alts, writes that the securities are "immune to interest rate movements", "hardly correlated to traditional markets," and have seen upwards pricing pressure" because of above average natural catastrophe losses in recent years.
The fact that the performance of ILS is bound up with catastrophic natural disasters also means their correlation with the performance of traditional asset classes is close to 0%. Climate change might affect the "frequency or the severity of large catastrophic events", says Divet, but given the risk of ILS is re-evaluated every year, any incremental increase would be taken into account by reducing exposure to risky assets or by adjusting spreads.
(Lucy Raitano)
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MARKET LOOKS FOR CLUES AS THAILAND AWAITS CHINESE TOURISTS (1107 GMT) The removal of Chinese restrictions on outbound travel has boosted shares and currencies around the world, but Thailand, one of the biggest likely winners from Chinese tourists returning, could take a while to fully benefit, says Barclays. Other markets hoping to see a surge of Chinese visitors will likely be watching closely for lessons on how the repoening will play out in the tourism sector.
Eleven million Chinese tourists visited Thailand in 2019 - 28% of the total international visitors and the biggest spenders - but this number plummeted to 300,000 in 2022.
Barclays analysts said in a Thursday note they expect 4.3 million Chinese tourists to Thailand this year, lower than government estimates, and most in the second half of the year due to fewer flights than before and media reports of a shortage of Mandarin speaking hotel workers and drivers.
Chinese tourists may also have less money to spend given the pandemic's impact on household balance sheets, the analysts said in their note headlined: "China tourists: A boost, not yet a bonanza".
Thailand's stock benchmark and the baht have softened this year from a 10 month highs hit in Jan.
(Alun John)
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ON THE UP (0937 GMT)
Gains in European shares, helped by several positive earnings reports, couldn't quite push
Paris' CAC40 to a new record high in early Thursday trading.
The French blue-chip benchmark is up 0.9% at 7,366.52, just shy of its all-time high of 7,384.86 hit in Jan 2022, led by Pernod Ricard , which rose 5% after the spirits maker reported strong results.
Europe's STOXX 600 rose 0.54%, with gains also in British and German benchmarks. A slew of European large caps have reported strong earnings today, including Airbus , whose shares are up 3%, Germany's Commerzbank , which is up 8.9% and British Gas owner Centrica, which is at the top of the FTSE 100, with a 4.5% share gain.
Earnings aside, the positive mood was also a result from data the day before on U.S. retail
sales, which increased by the most in nearly two years in January - up 3%, against expectations
for a 1.8% rise - as Americans spent freely despite higher borrowing costs, helping boost the
Nasdaq and S&P 500, The MSCI All-World index is up 0.3% on the day and heading for a 1.2% gain
this week.
(Alun John)
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WHAT LANDING? (0530 GMT)
Forget soft landing, equities seem to be betting on no landing for the U.S. economy: a sublime state where steady growth and low unemployment can co-exist with slowing inflation and higher interest rates. That at least would explain the resilience of stocks to blockbuster U.S. retail data and the rise of 10-year Treasury yields to seven-week highs. After an initial dip, Wall Street rallied into the close and futures have since nudged higher, lifting Asian markets in the process. Given that retail sales comprise 35% of consumption expenditure, the jump in January saw the Atlanta Fed's GDPNow estimate climb to 2.4% for the first quarter. That's a marked divergence from the Blue Chip consensus which has been tipping a sharp contraction for the quarter. Reacting to the run of better data, Goldman Sachs cut the chance of a U.S. recession in the next 12 months to 25%, from 35%. "Activity growth appears to remain positive but below potential, keeping the rebalancing of supply and demand on track," was Goldman's conclusion. In Asia, it's a testament to how indifferent markets are to Japanese economic data that the largest monthly trade deficit on record came and went with hardly a murmur.
The shortfall of 3.49 trillion yen, or $26 billion, reflected higher import costs for coal, LNG and oil, combined with a drop in exports of cars, car parts and chip-making equipment to China. That brought the rolling 12-month deficit to a staggering $174 billion, underscoring the ongoing transfer of wealth from manufacturing nations to resource producers. That flow of money offshore is another reason why the yen is still so weak, despite all the talk of an eventual end to super-easy money by the Bank of Japan. Speaking of which, Kazuo Ueda, the government's nominee for BOJ governor, will appear at a confirmation hearing in parliament on Feb. 24. Markets will be hoping Ueda will clarify just where he sits on the dovish/hawkish scale, or at least offer some clue on how long yield curve control might last. Investors clearly think its days are numbered given 10-year yields have been pinned to the 50-basis-point ceiling for the past week or so. (Wayne Cole)
***** VA VA VOOM: CAC40 TO TEST RECORD HIGH (0732 GMT)
European stocks are set to start the day in the green, with France's CAC 40 on the cusp of a record high, as equity markets decided that strong retail sales data in the United States was good news for companies, rather than worry about it being likely to support interest rate rises. The French blue chip index closed on Wednesday at 7,300.8 points, a step away from its all-time high of 7,384.86 hit in Jan 2022. With CAC40 futures up 0.62% a record-setting Thursday seems very plausible.
Britain's FTSE index is also trading at record highs.
The mood is positive across the region, with Eurostoxx 50 March futures up 0.54%; DAX futures 0.43% higher; and FTSE futures gaining 0.43% The positive mood came from data the day before on U.S. retail sales, which increased by the most in nearly two years in January - up 3%, against expectations for a 1.8% rise - as Americans spent freely despite higher borrowing costs, helping the Nasdaq and S&P 500 MSCI's broadest index of Asia-Pacific shares outside Japan is currently up 0.7% and set for its best day in two weeks, despite paring gains on the back of an afternoon tumble in Chinese stocks.
In a further boost to the French market, drinks maker Pernod Ricard delivered forecast-beating first-half profit and sales, helped by price increases in the key Chinese and U.S. markets. There was also positive earnings news from banks, whose interest income has been boosted by higher global rates. Standard Chartered reported a 28% rise in annual pretax profit, causing the London-headquartered but Asia-focused bank to raise a key performance metric and unveiled a new $1 billion share buyback program on Thursday. Its Hong Kong shares are currently up nearly 3%.
Germany's Commerzbank's net profit rose a better-than-expected 12% in the fourth quarter, capping a second consecutive profitable year as the lender undergoes a major restructuring. Investors are also watching British housing provider Home REIT , which has been under scrutiny over the last few months after a short-seller report by Viceroy Research, and which said on Thursday it has received an unsolicited approach from Bluestar Group Ltd on a possible acquisition offer. Alun John
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